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Petrodollar recycling, oil monopoly, and carbon taxes

Waldemar Marz and Johannes Pfeiffer

Journal of Environmental Economics and Management, 2020, vol. 100, issue C

Abstract: Besides affecting oil rents, climate policy can have far-reaching capital market implications. We identify a new general equilibrium transmission channel of climate policy on oil extraction by an oil monopolist who accounts for the influence of oil supply on returns on own petrodollar-financed capital assets. Climate-policy-induced adjustments in capital asset holdings by the exporting country lead to postponement of extraction under a wide range of reasonable parameter settings: for the reference calibration present extraction drops by 1.28 percent for an ad valorem tax corresponding to 100$ per ton of carbon, while it increases by 0.52 percent for a competitive oil market. This contrasts with the literature on supply-side effects of climate policy which neglects these capital market implications. Concerns about carbon taxes arising from unintended climate-damaging supply reactions are alleviated.

Keywords: Monopoly; Fossil energy resources; General equilibrium; Capital assets; Climate policy (search for similar items in EconPapers)
JEL-codes: D90 H20 Q31 Q38 (search for similar items in EconPapers)
Date: 2020
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Working Paper: Petrodollar Recycling, Oil Monopoly, and Carbon Taxes (2015) Downloads
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DOI: 10.1016/j.jeem.2019.102263

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Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

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