Climate policy with tied hands: optimal resource taxation under implementation lags

Di Maria, Corrado, Smulders, Sjak and Van der Werf, Edwin (2017) Climate policy with tied hands: optimal resource taxation under implementation lags. Environmental and Resource Economics, 66 (3). 537–551. ISSN 0924-6460

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      Abstract

      In the presence of implementation lags, announced Pigouvian taxation leads to fossil fuel prices that are too low from society’s perspective. This results in excessive emissions and reduced incentives for green innovation. Such effects are compounded by the presence of pre-existing subsidies to fossil fuel use. We show that the intertemporal resource tax path may need to be modified to optimally take into account the perverse incentives from policy lags and pre-existing policies. We find that it might be optimal to subsidize, rather than tax resource extraction at the instant of implementation.

      Item Type: Article
      Additional Information: This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made.
      Faculty \ School: Faculty of Social Sciences > School of Economics
      Depositing User: Pure Connector
      Date Deposited: 02 Nov 2016 11:00
      Last Modified: 09 Apr 2019 11:32
      URI: https://ueaeprints.uea.ac.uk/id/eprint/61196
      DOI: 10.1007/s10640-016-0091-6

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