Optimal energy transition and taxation of non-renewable resources

N. Baris Vardar ()
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N. Baris Vardar: Paris School of Economics, France; Université catholique de Louvain, CORE & Chair Lhoist Berghmans in Environmental Economics and Management, Belgium

No 2014021, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: This paper investigates the optimal taxation path of a non-renewable resource in the presence of an imperfect substitute renewable resource. We present an optimal growth model and characterize the social optimum and the decentralized equilibrium. We show that the economy gradually reduces the share of non-renewable resource and converges to a steady state in which it uses only the renewable resource. The decentralized economy converges to the same steady state as the social optimum in terms of capital stock and consumption whether there is a regulator intervention or not. What matters for welfare, however, is the speed at which the economy approaches the clean state - the energy transition, which determines the level of environmental damages. We obtain the optimal taxation rule and show that its time profile can be either always increasing, decreasing or U-shaped depending on the initial state of the economy. Finally we provide some simulation results to illustrate these theoretical findings.

Keywords: energy; optimal taxation; non-renewable resource; renewable resource; imperfect substitution; simultaneous resource use (search for similar items in EconPapers)
JEL-codes: Q20 Q30 Q38 Q43 (search for similar items in EconPapers)
Date: 2014-07-03
New Economics Papers: this item is included in nep-dge, nep-ene and nep-env
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Persistent link: https://EconPapers.repec.org/RePEc:cor:louvco:2014021

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