FEEM Research Seminar on "The Green Paradox, A Hotelling Cul de Sac"
06.03.2018
06.03.2018
12:30 - 14:00
Venice
Fondazione Eni Enrico Mattei
Isola di San Giorgio Maggiore
30124 Venice
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video-conference (at FEEM Milan) and GoToMeeting broadcast available
h. 12.30 Seminar
In Milan and Venice a light lunch will follow the seminar for registered participants.
Robert Cairns, McGill University
Registration is required. Please confirm your participation here.
Seminars Office, [email protected]
The green paradox is an effect by which an increasing tax per unit on oil production, aimed at tracking damages from CO2 emissions, induces an increase in world production and a decrease in price in the near term. The increase is a rational response in a Hotelling exhaustible-resource model. We simulate the decisions of a price-taking producer in response to a tax of various shapes. In contrast to a Hotelling model, our extraction technology involves irreversible, lumpy investments in exploration and development. In addition, we assume output from a developed reserve is subject to natural decline at a rate that is determined by the sunk development investment and the geology of the reserve. Decisions are far more complicated, and results far subtler, than in the Hotelling framework. Given a price path, we show that almost any form of tax causes a reduction in the level of development and initial production, thereby contradicting the hypothesis of the green paradox. A major consequence of the tax is a substantial deadweight loss.
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The seminar is organised under the GEMCLIME Project (Global Excellence in Modelling of Climate and Energy – GEMCLIME, G.A. n. 681228).
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