Petrodollar Recycling, Oil Monopoly, and Carbon Taxes

Waldemar Marz and Johannes Pfeiffer

No 204, ifo Working Paper Series from ifo Institute - Leibniz Institute for Economic Research at the University of Munich

Abstract: We identify a new general equilibrium transmission channel of climate policy on oil extraction, assuming an oil monopolist who accounts for the implications of oil supply on her capital asset returns. Policy-induced adjustments in asset holdings lead to postponement of extraction under a wide range of reasonable parameter settings: present extraction can drop considerably for a moderately high carbon tax. For endogenous exploration, a decrease in first-period extraction and in cumulative extraction at the same time is also possible. This contrasts with the literature on supply-side effects of climate policy which neglects these capital market implications. Concerns about carbon taxes arising from impeding climate-damaging supply reactions are alleviated, while taxing asset returns may induce acceleration of extraction.

JEL-codes: D90 H20 Q31 Q38 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (3)

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Journal Article: Petrodollar recycling, oil monopoly, and carbon taxes (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ifowps:_204

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