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Research article2022Peer reviewedOpen access

The black paradox

Hart, Rob; Gars, Johan


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.


Market power; OPEC; Coal; Climate change

Published in

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

    Sustainable Development Goals

    SDG7 Affordable and clean energy
    SDG12 Responsible consumption and production

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