UNTAPPED FOSSIL FUEL AND THE GREEN PARADOX; A classroom calibration of the optimal carbon tax

Frederick (Rick) van der Ploeg

No 119, OxCarre Working Papers from Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford

Abstract: A classroom model of global warming, fossil fuel depletion and the optimal carbon tax is formulated and calibrated. It features iso-elastic fossil fuel demand, stock-dependent fossil fuel extraction costs, an exogenous interest rate and no decay of the atmospheric stock of carbon. The optimal carbon tax reduces emissions from burning fossil fuel, both in the short and medium run. Furthermore, it brings forward the date that renewables take over from fossil fuel and encourages the market to keep more fossil fuel locked up. A renewables subsidy induces faster fossil fuel extraction and thus accelerates global warming during the fossil fuel phase, but brings forward the carbon-free era, locks up more fossil fuel reserves and thus ultimately curbs cumulative carbon emissions and global warming. For relatively large subsidies social welfare is more likely to fall as the economic costs rises more than proportionally with the size of the subsidy. Our calibration suggests that such subsidies are not a good second-best climate policy.

Keywords: global warming; social cost of carbon; optimal carbon tax; renewables (search for similar items in EconPapers)
JEL-codes: D81 H20 Q31 Q38 (search for similar items in EconPapers)
Date: 2013-08-05
New Economics Papers: this item is included in nep-ene, nep-env and nep-res
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ora.ox.ac.uk/objects/uuid:2f7be105-9fff-4a99-9d4a-76817dfef4a3 (text/html)

Related works:
Journal Article: Untapped fossil fuel and the green paradox: a classroom calibration of the optimal carbon tax (2015)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oxf:oxcrwp:119

Access Statistics for this paper

More papers in OxCarre Working Papers from Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford Contact information at EDIRC.
Bibliographic data for series maintained by Melis Boya ( this e-mail address is bad, please contact ).