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Research article - Peer-reviewed, 2022

The black paradox

Hart, Rob; Gars, Johan

Abstract

We model competition between an oil monopolist and competitive suppliers of coal and renewable energy in a dynamic general equilibrium framework. We show that market power- which disrupts the order of extraction-may lead to higher long-run emissions by encouraging early extraction of dirty fuels such as coal which would otherwise remain in the ground permanently; simply banning coal burning may be better than Pigovian taxation. Market power can of course be corrected by production subsidies to the monopolist, but when distribution affects welfare a better option is to offer subsidies to renewable energy, which force the oil monopolist to reduce her (limit) price but are never actually paid out.

Keywords

Market power; OPEC; Coal; Climate change

Published in

European Economic Review
2022, volume: 148, article number: 104211
Publisher: ELSEVIER

Authors' information

Swedish University of Agricultural Sciences, Department of Economics
Gars, Johan
Royal Swedish Academy of Sciences

Sustainable Development Goals

SDG7 Affordable and clean energy
SDG12 Ensure sustainable consumption and production patterns

UKÄ Subject classification

Economics

Publication Identifiers

DOI: https://doi.org/10.1016/j.euroecorev.2022.104211

URI (permanent link to this page)

https://res.slu.se/id/publ/118731