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

Corrado Di Maria; Sjak Smulders; Edwin van der Werf

doi:10.1007/s10640-016-0091-6

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

Corrado Di Maria, Sjak Smulders, Edwin van der Werf

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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.

Original language	English
Pages (from-to)	537–551
Number of pages	15
Journal	Environmental and Resource Economics
Volume	66
Issue number	3
Early online date	28 Nov 2016
DOIs	https://doi.org/10.1007/s10640-016-0091-6
Publication status	Published - Mar 2017

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Corrado Di Maria
- C.Di-Mariauea.acuk
- School of Economics - Professor of Environmental & Natural Resource Economics
- Research and Innovation Services - ClimateUEA Academic Chair
- Centre for Social and Economic Research on the Global Environment (CSERGE) - Member
- Tyndall Centre for Climate Change Research - Member
- Applied Econometrics And Finance - Member
- Economic Theory - Member
- Environment, Resources and Conflict - Member
- ClimateUEA - Member
Person: Research Group Member, Research Centre Member, Academic, Teaching & Research

Cite this

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

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Corrado Di Maria

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