Second-best carbon taxation in the global economy: The Green Paradox and carbon leakage revisited

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

Acceleration of global warming resulting from a future carbon tax is large if the price elasticities of oil demand are large and that of oil supply is small. The fall in the world interest rate weakens this weak Green Paradox effect, especially if intertemporal substitution is weak. Still, social damages from greenhouse gases drop if the fall in oil supply and cumulative emissions is strong enough. If the current carbon tax is set too low, the second-best future carbon tax is set below the first best too to mitigate adverse Green Paradox effects. Unilateral second-best optimal carbon taxes exceed the first-best taxes due to an import tariff component. The intertemporal terms of trade effects of the future carbon tax increase current and future tariffs and those of the current tax lower the current tariff. Finally, carbon leakage and globally altruistic and unilateral second-best optimal carbon taxes if non-Kyoto oil importers price carbon too low are analysed in a three-country model of the global economy.
Original languageEnglish
Pages (from-to)85-105
Number of pages20
JournalJournal of Environmental Economics and Management
Volume78
Issue numberJuly
DOIs
Publication statusPublished - 2016

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pollution tax
global economy
leakage
carbon
oil supply
terms of trade
oil
interest rate
elasticity
import
taxation
Carbon leakage
Carbon tax
Taxation
Global economy
Paradox
Carbon
global warming
substitution
greenhouse gas

Cite this

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title = "Second-best carbon taxation in the global economy: The Green Paradox and carbon leakage revisited",
abstract = "Acceleration of global warming resulting from a future carbon tax is large if the price elasticities of oil demand are large and that of oil supply is small. The fall in the world interest rate weakens this weak Green Paradox effect, especially if intertemporal substitution is weak. Still, social damages from greenhouse gases drop if the fall in oil supply and cumulative emissions is strong enough. If the current carbon tax is set too low, the second-best future carbon tax is set below the first best too to mitigate adverse Green Paradox effects. Unilateral second-best optimal carbon taxes exceed the first-best taxes due to an import tariff component. The intertemporal terms of trade effects of the future carbon tax increase current and future tariffs and those of the current tax lower the current tariff. Finally, carbon leakage and globally altruistic and unilateral second-best optimal carbon taxes if non-Kyoto oil importers price carbon too low are analysed in a three-country model of the global economy.",
author = "{van der Ploeg}, F.",
year = "2016",
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language = "English",
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pages = "85--105",
journal = "Journal of Environmental Economics and Management",
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publisher = "Academic Press Inc.",
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}

Second-best carbon taxation in the global economy: The Green Paradox and carbon leakage revisited. / van der Ploeg, F.

In: Journal of Environmental Economics and Management, Vol. 78, No. July, 2016, p. 85-105.

Research output: Contribution to JournalArticleAcademicpeer-review

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AB - Acceleration of global warming resulting from a future carbon tax is large if the price elasticities of oil demand are large and that of oil supply is small. The fall in the world interest rate weakens this weak Green Paradox effect, especially if intertemporal substitution is weak. Still, social damages from greenhouse gases drop if the fall in oil supply and cumulative emissions is strong enough. If the current carbon tax is set too low, the second-best future carbon tax is set below the first best too to mitigate adverse Green Paradox effects. Unilateral second-best optimal carbon taxes exceed the first-best taxes due to an import tariff component. The intertemporal terms of trade effects of the future carbon tax increase current and future tariffs and those of the current tax lower the current tariff. Finally, carbon leakage and globally altruistic and unilateral second-best optimal carbon taxes if non-Kyoto oil importers price carbon too low are analysed in a three-country model of the global economy.

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