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Carbon taxation, OPEC and the end of oil

Niko Jaakkola

Journal of Environmental Economics and Management, 2019, vol. 94, issue C, 101-117

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.

Keywords: Exhaustible resources; Carbon taxes; Alternative fuels; Limit pricing; Climate change (search for similar items in EconPapers)
JEL-codes: D42 O32 Q31 Q40 Q5 (search for similar items in EconPapers)
Date: 2019
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Related works:
Working Paper: Putting OPEC Out of Business (2013) Downloads
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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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