Market Power Rents and Climate Change Mitigation: A Rationale for Coal Taxes?

Philipp Richter (), Roman Mendelevitch () and Frank Jotzo

No 1471, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: In this paper we investigate the introduction of an export tax on steam coal levied by an individual country (Australia), or a group of major exporting countries. The policy motivation would be twofold: generating tax revenues against the background of improved terms-of-trade, while CO2 emissions are reduced. We construct and numerically apply a two-level game consisting of an optimal policy problem at the upper level, and an equilibrium model of the international steam coal market (based on COALMOD-World) at the lower level. We find that a unilaterally introduced Australian export tax on steam coal has little impact on global emissions and may be welfare reducing. On the contrary, a tax jointly levied by a "climate coalition" of major coal exporters may well leave these better off while significantly reducing global CO2 emissions from steam coal by up to 200 Mt CO2 per year. Comparable production-based tax scenarios consistently yield higher tax revenues but may be hard to implement against the opposition of disproportionally affected local stakeholders depending on low domestic coal prices.

Keywords: Export tax; steam coal; supply-side climate policy; carbon leakage; Australia; Mathematical Program with Equilibrium Constraints (MPEC) (search for similar items in EconPapers)
JEL-codes: C61 F13 Q41 Q48 Q58 (search for similar items in EconPapers)
Pages: 40 p.
Date: 2015
New Economics Papers: this item is included in nep-agr, nep-ene and nep-env
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Citations: View citations in EconPapers (8)

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https://www.diw.de/documents/publikationen/73/diw_01.c.502678.de/dp1471.pdf (application/pdf)

Related works:
Working Paper: Market power rents and climate change mitigation: a rationale for coal taxes? (2017)
Working Paper: Market Power Rents and Climate Change Mitigation: A Rationale for Coal Taxes? (2015)
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