IDEAS home Printed from https://ideas.repec.org/p/usg/econwp/201144.html
   My bibliography  Save this paper

Optimal Fuel-Specific Carbon Pricing and Time Dimension of Leakage

Author

Listed:
  • Habermacher, Florian

    ()

Abstract

All current, and likely near-term future, climate protection measures only cover a limited fraction of global emissions. A single value attached to CO2 (independent of the source that generates it), for market based instruments such as CO2 taxes or cap-and-trade systems, is insufficient to account for the complex economic interlinkages between specific emission-generating activities and CO2 emissions throughout the world. First, static partial and general equilibrium models illustrate how different types of emissions are subject to specific General Equilibrium Translation Factors and leakage effects, which define the optimal pattern of fuel-specific, unilateral carbon taxes. The leakage, which implies that regional emission avoidance may partly be offset in other regions and time periods, depends on the type of resources involved and the characteristics of the markets in which they are traded. Second, a dynamic model accounting for fuel exhaustibility shows that the time-dimension is crucial and that the relevant medium-term leakage may be much larger than suggested static rates. Sensible leakage rates depend on discount rates for future emissions and on uncertain future technological and political developments. The traditional leakage literature does not explicitly consider these elements, even though in their absence overall leakage would approach 100 %. Instead, literature has mainly focused on static fuel supply curves and rates of contemporaneous leakage. The numerical simulations show that in a business-as-usual scenario the optimal unilateral OECD climate tax rate on CO2 emissions from oil may be only half of the tax rate on emissions from coal. This is reverted if the CO2 intensive coal-to-liquids conversion processes become an important additional source of liquid fuels in future: negative leakage occurs and the optimal current climate tax on oil emissions may be up to two times the genuine regional willingness to pay for global emission reductions, even if the substitution of crude oil by synthetic liquids starts only in the future.

Suggested Citation

  • Habermacher, Florian, 2011. "Optimal Fuel-Specific Carbon Pricing and Time Dimension of Leakage," Economics Working Paper Series 1144, University of St. Gallen, School of Economics and Political Science, revised Jan 2012.
  • Handle: RePEc:usg:econwp:2011:44
    as

    Download full text from publisher

    File URL: http://ux-tauri.unisg.ch/RePEc/usg/econwp/EWP-1144.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Jean-Marc Burniaux & Joaquim Oliveira Martins, 2012. "Carbon leakages: a general equilibrium view," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 49(2), pages 473-495, February.
    2. Böhringer, Christoph & Lange, Andreas & Rutherford, Thomas F., 2014. "Optimal emission pricing in the presence of international spillovers: Decomposing leakage and terms-of-trade motives," Journal of Public Economics, Elsevier, vol. 110(C), pages 101-111.
    3. Felder Stefan & Rutherford Thomas F., 1993. "Unilateral CO2 Reductions and Carbon Leakage: The Consequences of International Trade in Oil and Basic Materials," Journal of Environmental Economics and Management, Elsevier, vol. 25(2), pages 162-176, September.
    4. Corrado Maria & Edwin Werf, 2008. "Carbon leakage revisited: unilateral climate policy with directed technical change," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 39(2), pages 55-74, February.
    5. Michael Hoel, 2010. "Is there a Green Paradox?," CESifo Working Paper Series 3168, CESifo Group Munich.
    6. Golombek, Rolf & Hagem, Cathrine & Hoel, Michael, 1995. "Efficient incomplete international climate agreements," Resource and Energy Economics, Elsevier, vol. 17(1), pages 25-46, May.
    7. James M. Poterba, 1991. "Tax Policy to Combat Global Warming: On Designing a Carbon Tax," NBER Working Papers 3649, National Bureau of Economic Research, Inc.
    8. Florian Habermacher & Gebhard Kirchgässner, 2011. "Climate Effects of Carbon Taxes, Taking into Account Possible Other Future Climate Measures," CESifo Working Paper Series 3404, CESifo Group Munich.
    9. Lanz, Bruno & Rausch, Sebastian, 2011. "General equilibrium, electricity generation technologies and the cost of carbon abatement: A structural sensitivity analysis," Energy Economics, Elsevier, vol. 33(5), pages 1035-1047, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Florian Habermacher, 2012. "Is carbon leakage really low? A critical reconsideration of the leakage concept," Chapters,in: Carbon Pricing, Growth and the Environment, chapter 16, pages 247-260 Edward Elgar Publishing.
    2. Florian Habermacher, 2015. "Carbon Leakage: A Medium- and Long-Term View," CESifo Working Paper Series 5216, CESifo Group Munich.

    More about this item

    Keywords

    Unilateral climate policy; fuel specific carbon tax; fossil fuel exhaustion/depletion; leakage over time; general equilibrium resource market; coal-to-liquids; liquefaction; OECD.;

    JEL classification:

    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:usg:econwp:2011:44. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Martina Flockerzi). General contact details of provider: http://edirc.repec.org/data/vwasgch.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.