Market power, international CO2 taxation and petroleum wealth
Berg, E., Kverndokk, S., Rosendal, K. E.
We study the effects on oil prices, extraction paths and oil wealth of an international carbon tax on fossil fuel consumption. We also present an intertemporal equilibrium model for fossil fuels. Our conclusion is that a carbon tax will hurt OPEC more than other producers, as the cartel is induced by its market power to restrain production in order to maintain the oil price. Thus, the effects on the oil wealth of the competitive fringe are minor, while OPEC's wealth is considerably reduced. We also show by applying a competitive model that this result is due to market structure, and not to differences in the resource base.