Pollution Decay, Consumer Awareness and Optimal Carbon Taxes

Leif Sandal () and Stein Ivar Steinshamn

No 2004/7, Discussion Papers from Norwegian School of Economics, Department of Business and Management Science

Abstract: The effects of non-linear decay and consumer preferences are analyzed in a setting where optimal extraction of non-renewable resources is combined with stock externalities. The control is exercised via a corrective tax and the time horizon is divided into two periods: an initial phase with extraction and a terminal phase without extraction. The time horizon with extraction is determined endogenously. The model does not assume separability of the objective function. Sensitivity results indicate large differences in the optimal extraction period, the total level of extraction and cumulative emissions depending on the form of the decay function and the presence of consumers’ awareness for the environment.

Keywords: Global warming; fossil fuel extraction; dynamic optimisation (search for similar items in EconPapers)
JEL-codes: C61 Q25 Q28 Q30 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2004-06-01
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