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Optimal Carbon Tax Scheme under Uncertainty in an Oligopolistic Market of Polluters

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  • Andreas Welling

    () (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

Abstract

Carbon taxation is used by several countries to internalize the negative effects of carbon emissions to the emitters of carbon. In this article the effects of a carbon tax on an oligopolistic market of polluters are analyzed. With the help of a multi-criteria optimization model the optimal carbon tax rate is determined; first under certainty and then in presence of demand uncertainty. It is shown that demand uncertainty leads to a lower optimal carbon tax rate, while it simultaneously increases carbon emissions. Finally, the influence of a possible carbon emission reducing investment is analyzed with the help of a real option model.

Suggested Citation

  • Andreas Welling, 2017. "Optimal Carbon Tax Scheme under Uncertainty in an Oligopolistic Market of Polluters," FEMM Working Papers 170001, Otto-von-Guericke University Magdeburg, Faculty of Economics and Management.
  • Handle: RePEc:mag:wpaper:170001
    as

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    References listed on IDEAS

    as
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    Keywords

    Carbon Tax; Climate Change; Real Option; Technological Progress; Uncertainty; Oligopolistic competition;

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