A Third Benefit of Joint Non-OPEC Carbon Taxes: Transferring OPEC Monopoly Rent

24 Pages Posted: 12 Aug 2009

See all articles by Yan Dong

Yan Dong

Chinese Academy of Social Sciences (CASS)

John Whalley

University of Western Ontario - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute); Centre for International Governance and Innovation (CIGI)

Date Written: August 2009

Abstract

This paper highlights the potential for joint OECD (or non-OPEC) carbon taxes to reduce OPEC’s monopoly rent and provide benefit to non-OPEC countries provided jointly agreed trigger strategies are adhered to. In traditional economic theory, the primary purpose of a carbon tax is to internalize a global negative externality. A second benefit for individual countries is that the revenue raised by carbon tax can be used to reduce other tax rates and so lower the deadweight loss of tax system. In this paper, we discuss a third benefit of carbon taxes: transferring rents from OPEC to the oil importing countries.

We develop a multi-region general equilibrium structure with endogenously determined oil supply for the purpose in which emissions are endogenously determined. We calibrate our model to 2006 data. Our analytics and numerical simulation results highlight how a uniform carbon tax used by all non-OPEC countries will increase the buyer’s price of oil but decrease the supplier’s price of oil, thus decreasing non-OPEC countries’ oil demand, and transferring OPEC monopoly rent to non-OPEC countries. Carbon taxes reduce the welfare of OPEC and increase the welfare of non-OPEC countries. Results also show how carbon taxes reduce global emissions, but the effect is small.

Keywords: carbon taxes, OECD, monopoly rent

JEL Classification: Z19

Suggested Citation

Dong, Yan and Whalley, John, A Third Benefit of Joint Non-OPEC Carbon Taxes: Transferring OPEC Monopoly Rent (August 2009). Available at SSRN: https://ssrn.com/abstract=1447226 or http://dx.doi.org/10.2139/ssrn.1447226

Yan Dong

Chinese Academy of Social Sciences (CASS) ( email )

Beijing, 100732
China

John Whalley (Contact Author)

University of Western Ontario - Department of Economics ( email )

London, Ontario N6A 5B8
Canada
519-661-3509, ext. 83509 (Phone)
519-661-3666 (Fax)

HOME PAGE: http://www.ssc.uwo.ca/economics/faculty/

National Bureau of Economic Research (NBER)

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CESifo (Center for Economic Studies and Ifo Institute)

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Germany

HOME PAGE: http://www.CESifo.de

Centre for International Governance and Innovation (CIGI) ( email )

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Canada

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