Carbon taxation,OPEC and the end of oil |
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| Institution: | 1. Colorado School of Mines, 1500 Illinois St, Golden CO, 80401, United States;2. University of California, San Diego and NBER, 9500 Gilman Dr, La Jolla CA, 92093-0519, USA;1. The World Bank, United States;2. Georgetown University, United States;1. Federal Reserve Bank of Kansas City, 1 Memorial Dr, Kansas City, MO 64198, USA;2. Colorado School of Mines, Division of Economics & Business, 1500 Illinois Street, Golden, CO 80401, USA;3. Colorado State University, Department of Agricultural and Resource Economics, B304 Clark Building, Fort Collins, CO 80523, USA;1. Economics at the University of Nevada, Las Vegas, 4505 S. Maryland Pkwy, MS 6002, Las Vegas, NV 89154, United States;2. Resources for the Future, 1616 P St. NW, Washington, DC 20036, United States;3. Energy Modeling Forum at Stanford University, Department of Management Science and Engineering, Huang Engineering Building, Room #258, 475 Via Ortega, Stanford University, Stanford, CA 94305-4121, United States;1. Vrije Universiteit Amsterdam, Tinbergen Institute, The Netherlands;2. IPAG Business School, Vrije Universiteit Amsterdam, Tinbergen Institute, France |
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| 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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| Keywords: | Exhaustible resources Carbon taxes Alternative fuels Limit pricing Climate change D42 O32 Q31 Q40 Q5 |
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