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Carbon taxation, OPEC and the end of oil

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  • Jaakkola, Niko

Abstract

I develop a differential game between an oil cartel and an importer investing in research and development (R&D) to reduce the cost of a green substitute to oil. In equilibrium, the cartel is forced to deter the substitute, which thus imposes a price ceiling falling over time. Credible carbon taxes are below the Pigovian level, implying the importer cannot internalise the full pollution externality, much less capture resource rents. Without carbon pricing, the importer curtails long-run pollution using a costly R&D programme. Normatively, climate policy will be more expensive if relying on green R&D programmes only.

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  • Jaakkola, Niko, 2019. "Carbon taxation, OPEC and the end of oil," Journal of Environmental Economics and Management, Elsevier, vol. 94(C), pages 101-117.
    • Handle: RePEc:eee:jeeman:v:94:y:2019:i:c:p:101-117
    DOI: 10.1016/j.jeem.2019.01.011
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    Cited by:

    1. Andrade de Sá, Saraly & Daubanes, Julien, 2016. "Limit pricing and the (in)effectiveness of the carbon tax," Journal of Public Economics, Elsevier, vol. 139(C), pages 28-39.
    2. van der Ploeg, Frederick, 2016. "Second-best carbon taxation in the global economy: The Green Paradox and carbon leakage revisited," Journal of Environmental Economics and Management, Elsevier, vol. 78(C), pages 85-105.
    3. Jaakkola, Niko & van der Ploeg, Frederick, 2019. "Non-cooperative and cooperative climate policies with anticipated breakthrough technology," Journal of Environmental Economics and Management, Elsevier, vol. 97(C), pages 42-66.
    4. van der Meijden, Gerard & Withagen, Cees, 2019. "Limit pricing, climate policies, and imperfect substitution," Resource and Energy Economics, Elsevier, vol. 58(C).
    5. Malik Curuk & Suphi Sen, 2023. "Climate Policy and Resource Extraction with Variable Markups and Imperfect Substitutes," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(4), pages 1091-1120.
    6. Frederick Ploeg & Aart Zeeuw, 2016. "Non-cooperative and Cooperative Responses to Climate Catastrophes in the Global Economy: A North–South Perspective," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(3), pages 519-540, November.
    7. Michielsen, Thomas O., 2014. "Strategic resource extraction and substitute development," Resource and Energy Economics, Elsevier, vol. 36(2), pages 455-468.
    8. van der Ploeg, Frederick, 2020. "Race to burn the last ton of carbon and the risk of stranded assets," European Journal of Political Economy, Elsevier, vol. 64(C).
    9. Thomas St rdal Gundersen & Even Soltvedt Hvinden, 2021. "OPEC's crude game: Strategic Competition and Regime-switching in Global Oil Markets," Working Papers No 01/2021, Centre for Applied Macro- and Petroleum economics (CAMP), BI Norwegian Business School.
    10. Sun, Qingqing & Chen, Hong & Long, Ruyin & Yang, Jiahui, 2023. "Who will pay for the “bicycle cemetery”? Evolutionary game analysis of recycling abandoned shared bicycles under dynamic reward and punishment," European Journal of Operational Research, Elsevier, vol. 305(2), pages 917-929.
    11. Jaakkola, Niko, 2019. "Carbon taxation, OPEC and the end of oil," Journal of Environmental Economics and Management, Elsevier, vol. 94(C), pages 101-117.
    12. Naef, Alain, 2024. "The impossible love of fossil fuel companies for carbon taxes," Ecological Economics, Elsevier, vol. 217(C).
    13. Saraly Andrade de Sa & Julien Daubanes, 2014. "Limit-Pricing and the (Un)Effectiveness of the Carbon Tax," Working Papers 2014.07, FAERE - French Association of Environmental and Resource Economists.
    14. Frederick van der Ploeg & Cees Withagen, 2015. "Global Warming and the Green Paradox: A Review of Adverse Effects of Climate Policies," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 9(2), pages 285-303.
    15. van der Meijden, Gerard & Withagen, Cees, 2020. "Monopoly, unilateral climate policies and limit pricing," Journal of Economic Dynamics and Control, Elsevier, vol. 120(C).
    16. Jorge Antunes & Abdollah Hadi-Vencheh & Ali Jamshidi & Yong Tan & Peter Wanke, 2024. "Efficiency of Low-Carbon Finance: Its Interrelationships with Industry and Macroeconomic Environment," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 15(3), pages 15328-15364, September.
    17. Hart, Rob & Gars, Johan, 2022. "The black paradox," European Economic Review, Elsevier, vol. 148(C).

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    More about this item

    Keywords

    Exhaustible resources; Carbon taxes; Alternative fuels; Limit pricing; Climate change;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics

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