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Climate change and carbon tax expectations
By Hoel, M.
2010
CESifo Working paper no. 2966
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Abstract |
If investors fear that future carbon taxes will be lower than currently announced by policy
makers, long-run investments in greenhouse gas mitigation may be smaller than desirable. On
the other hand, owners of a non-renewable carbon resource that underestimate future carbon
taxes will postpone extraction compared with what they would have chosen had the
policymakers been able to commit to the optimal tax path. If extraction costs rise rapidly as
accumulated extraction rises, near-term emissions increase as a consequence of a downward
bias in the expected future carbon taxes. Whether investments in greenhouse gas mitigation
go up or down due to the expectation error depends on the time profile of the returns to the
investment. |
| JEL Classification:
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H23, Q30, Q42, Q54 |
| Keywords:
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climate change, exhaustible resources, carbon tax |
| Project:
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3162 Petroleum industry research in economics and economic management
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