The black paradox

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
    

Global goals (SDG)

SDG7 Affordable and clean energy
SDG12 Responsible consumption and production

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