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Growth and the Optimal Carbon Tax: When to Switch from Exhaustible Resources to Renewables?

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  • van der Ploeg, Frederick
  • Withagen, Cees

Abstract

Optimal climate policy is studied in a Ramsey growth model. A developing economy weighs global warming less, hence is more likely to exhaust fossil fuel and exacerbate global warming. The optimal carbon tax is higher for a developed economy. We analyze the optimal time of transition from fossil fuel to renewables, amount of fossil fuel to leave in situ, and carbon tax. Subsidizing a backstop without an optimal carbon tax induces more fossil fuel to be left in situ and a quicker phasing in of renewables, but fossil fuel is depleted more quickly. Global warming need thus not be alleviated.

Suggested Citation

  • van der Ploeg, Frederick & Withagen, Cees, 2011. "Growth and the Optimal Carbon Tax: When to Switch from Exhaustible Resources to Renewables?," CEPR Discussion Papers 8215, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:8215
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    Cited by:

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    2. Luise Röpke, 2015. "Essays on the Integration of New Energy Sources into Existing Energy Systems," ifo Beiträge zur Wirtschaftsforschung, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, number 58.
    3. Kögel, Tomas, 2011. "The social cost of carbon on an optimal balanced growth path," Economics Discussion Papers 2011-35, Kiel Institute for the World Economy (IfW Kiel).
    4. Haradhan Kumar Mohajan, 2011. "Optimal Environmental Taxes Due to Health Effect," KASBIT Business Journals (KBJ), Khadim Ali Shah Bukhari Institute of Technology (KASBIT), vol. 4, pages 1-19, December.
    5. Partha Sen, 2016. "Unilateral Emission Cuts and Carbon Leakages in a Dynamic North–South Trade Model," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 64(1), pages 131-152, May.
    6. Partha Sen, 2018. "Unilateral Policies, Competitiveness and the ‘Green Paradox’ in a Dynamic North–South Model," Arthaniti: Journal of Economic Theory and Practice, , vol. 17(2), pages 113-139, December.

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    More about this item

    Keywords

    Carbon tax; Renewables; Exhaustible resources; Growth; Intergenerational inequality aversion; Second best; Green paradox; Global warming;
    All these keywords.

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E13 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Neoclassical

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