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

SLU Authors

• Hart, Robert

  • Department of Economics, Swedish University of Agricultural Sciences
    

Sustainable Development Goals

Ensure access to affordable, reliable, sustainable and modern energy for all
Ensure sustainable consumption and production patterns


UKÄ Subject classification

Economics


Publication identifier

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

Permanent link to this page (URI)

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