Petrodollar recycling, oil monopoly, and carbon taxes
Waldemar Marz and
Journal of Environmental Economics and Management, 2020, vol. 100, issue C
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)
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Working Paper: Petrodollar Recycling, Oil Monopoly, and Carbon Taxes (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:100:y:2020:i:c:s0095069618302584
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