International capital markets, oil producers and the Green Paradox

Gerard van der Meijden (), Frederick (Rick) van der Ploeg and Cees Withagen

European Economic Review, 2015, vol. 76, issue C, 275-297

Abstract: A rapidly rising carbon tax leads to faster extraction of fossil fuels and accelerates global warming. We analyze how general equilibrium effects operating through the international capital market affect this Green Paradox. In a two-region, two-period world with identical homothetic preferences and without investment, the global interest rate falls and the Green Paradox weakens. With investment or a relatively more impatient oil-importing region, the Green Paradox may be strengthened because the future oil demand function shifts downward or because the interest rate rises. If the oil-importing region is very much more patient than the oil-exporting region, the Green Paradox may be reversed but in our calibrated model the effects are tiny. With exploration and endogenous initial oil reserves, a future carbon tax lowers cumulative oil extraction in partial equilibrium. If the boost to current oil extraction is weakened, strengthened or reversed in general equilibrium, so is the fall in cumulative extraction. A partial and general equilibrium welfare analysis of a future carbon tax, both for full and partial exhaustion, is given. The effects of stock-dependent extraction costs are separately discussed in an Appendix.

Keywords: Global warming; Green Paradox; Capital markets; Carbon tax; General equilibrium (search for similar items in EconPapers)
JEL-codes: D90 H20 Q31 Q38 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0014292115000409
Full text for ScienceDirect subscribers only

Related works:
Working Paper: International Capital Markets, Oil Producers and the Green Paradox (2014)
Working Paper: International Capital Markets, Oil Producers and the Green Paradox (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:76:y:2015:i:c:p:275-297

DOI: 10.1016/j.euroecorev.2015.03.004

Access Statistics for this article

European Economic Review is currently edited by T.S. Eicher, A. Imrohoroglu, E. Leeper, J. Oechssler and M. Pesendorfer

More articles in European Economic Review from Elsevier
Bibliographic data for series maintained by Catherine Liu ().