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Carbon Taxes and the Petroleum Wealth

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Abstract

The aim of this paper is to examine the impacts of a global carbon tax on fossil fuel markets. In particular, the effect on the Norwegian, as well as the global, petroleum wealth is studied. Most empirical models of fossil fuel markets either use an exogenous price path, or model the supply side as being independent of future expectations. Hence, they are not able to test how the exhaustibility feature of fossil fuels affects the sharing of the tax burden between producers and consumers. We study a simple, dynamic model of a competitive fossil fuel market, and we first derive some general theoretical results regarding how a carbon tax may affect the producer and consumer prices. Then, simulations of the global oil market indicate that a fixed carbon tax of e.g. $10/barrel of oil may reduce the petroleum wealth of the average oil producer by 33-42%. The Norwegian petroleum wealth may decrease more than this, by 47-68%. The latter reduction may correspond to a yearly income loss of about 3% of Norwegian GDP. However, the figures should only be considered as very rough estimates, because of the simplistic nature of the model.

Suggested Citation

  • Knut Einar Rosendahl, 1994. "Carbon Taxes and the Petroleum Wealth," Discussion Papers 128, Statistics Norway, Research Department.
  • Handle: RePEc:ssb:dispap:128
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    1. Jorgenson, D.W. & Wilcoxen, P.J., 1992. "Reducing US Carbon Dioxide Emissions: An Assessment of Different Instruments," Harvard Institute of Economic Research Working Papers 1590, Harvard - Institute of Economic Research.
    2. Jorgenson, Dale W. & Wilcoxen, Peter J., 1993. "Reducing U.S. carbon dioxide emissions: an assessment of different instruments," Journal of Policy Modeling, Elsevier, vol. 15(5-6), pages 491-520.
    3. Clarete, Ramon L. & Whalley, John, 1987. "Comparing the marginal welfare costs of commodity and trade taxes," Journal of Public Economics, Elsevier, pages 357-362.
    4. Alan S. Manne & Richard G. Richels, 1991. "Global CO2 Emission Reductions - the Impacts of Rising Energy Costs," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 87-108.
    5. D. W. Barns & J. A. Edmonds & J. M. Reilly, 1992. "Use of the Edmonds-Reilly Model to Model Energy-Related Greenhouse Gas Emissions," OECD Economics Department Working Papers 113, OECD Publishing.
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    More about this item

    Keywords

    Carbon Taxes; Exhaustible Resources; Petroleum Wealth;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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