IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Taxes and caps as climate policy instruments with domestic and imported fuels

  • Strand, Jon

This paper develops a global model of climate policy, focusing on the choice between tax and cap-and-trade solutions. The analysis assumes that the world can be split into two regions, with two fuels that both lead to carbon emissions. Region A consumes all fuels, and is responsible for defining and implementing climate policy. Region B produces all of fuel 1 (oil), while fuel 2 (interpreted as coal, natural gas, or renewables) is both produced and consumed in region A. The paper studies three model variants. All involve full policy coordination in each country block, but no coordination across blocks; and all involve an optimal producer tax on fuel 1 by region B. In model 1, region A sets two fuel consumption taxes, one for each fuel. The optimal region A tax on fuel 1 then exceeds the Pigou level as defined by the region; the tax set on fuel 2 is Pigouvian. The presence of a second fuel in region A reduces region B’s optimal tax on fuel 1. In model 2, region A sets a common carbon tax, which is lower (higher) for fuel 1 (2) than in model 1. In model 3, region A sets a carbon emissions cap. This enhances region B’s strategic position via the trade-off between fuels 1 and 2 in region A, following from the cap. In realistic cases, this leaves region A strategically weaker under a cap policy than under a tax policy, more so the less carbon-intensive the local fuel (2) is. In conclusion, a fuel-consuming and importing region that determines a climate policy will typically prefer to set a carbon tax, instead of setting a carbon emissions cap. The main reason is that a tax is more efficient than a cap at extracting rent from fuel (oil) exporters.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www-wds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2010/01/12/000158349_20100112080557/Rendered/PDF/WPS5171.pdf
Download Restriction: no

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5171.

as
in new window

Length:
Date of creation: 01 Jan 2010
Date of revision:
Handle: RePEc:wbk:wbrwps:5171
Contact details of provider: Postal: 1818 H Street, N.W., Washington, DC 20433
Phone: (202) 477-1234
Web page: http://www.worldbank.org/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Thomas Eichner & Rüdiger Pethig, 2009. "Carbon Leakage, the Green Paradox and Perfect Future Markets," CESifo Working Paper Series 2542, CESifo Group Munich.
  2. Bergstrom, Theodore C, 1982. "On Capturing Oil Rents with a National Excise Tax," American Economic Review, American Economic Association, vol. 72(1), pages 194-201, March.
  3. Hans-Werner Sinn, 2008. "Public policies against global warming: a supply side approach," International Tax and Public Finance, Springer, vol. 15(4), pages 360-394, August.
  4. Newbery, D., 2005. "Why Tax Energy? Towards a More Rational Energy Policy," Cambridge Working Papers in Economics 0508, Faculty of Economics, University of Cambridge.
  5. Salo, Seppo & Tahvonen, Olli, 2001. "Oligopoly equilibria in nonrenewable resource markets," Journal of Economic Dynamics and Control, Elsevier, vol. 25(5), pages 671-702, May.
  6. David I. Stern, 2009. "Interfuel Substitution: A Meta-Analysis," Departmental Working Papers 2009-06, The Australian National University, Arndt-Corden Department of Economics.
  7. David M. Newbery, 2005. "Why Tax Energy? Towards a More Rational Policy," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 1-40.
  8. Santiago J. Rubio & Luisa Escriche, 1998. "- Strategic Pigouvian Taxation, Stock Externalities And Polluting Non-Renewable Resources," Working Papers. Serie EC 1998-23, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  9. Liski, Matti & Tahvonen, Olli, 2004. "Can carbon tax eat OPEC's rents?," Journal of Environmental Economics and Management, Elsevier, vol. 47(1), pages 1-12, January.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wbk:wbrwps:5171. 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: (Roula I. Yazigi)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.