Putting OPEC out of business

Niko Jaakkola

No 99, OxCarre Working Papers from Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford

Abstract: I develop a differential game between an oil cartel, and an importer investing in R&D to reduce the cost of a substitute to oil. The equilibrium dynamics mirror the recent oil price collapse: prices first increase, but eventually fall as the cartel is forced to deter unconventional (shale) oil. Interpreting the substitute as clean energy, I assess future climate policy. Credible carbon taxes are below the Pigovian level, implying the importer certainly cannot capture resource rents. Without a tax instrument, the importer curtails long-run pollution using a costly R&D programme. Normatively, carbon taxes are necessary to tackle climate change efficiently.

Keywords: exhaustible resources; OPEC; oil prices; alternative fuels; limit (search for similar items in EconPapers)
JEL-codes: D42 O32 Q31 Q40 Q54 (search for similar items in EconPapers)
Date: 2012-10-10
New Economics Papers: this item is included in nep-com, nep-ene, nep-env and nep-res
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Citations: View citations in EconPapers (17)

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Journal Article: Carbon taxation, OPEC and the end of oil (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:oxf:oxcrwp:099

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