Environmental Taxes on Exhaustible Resources (PDF)

Inhaltsangabe:Introduction:
The link between greenhouse gases and global warming is scientifically well established nowadays. The burning of fossil fuels causes a large part of the world¿s greenhouse gas emissions. For example, the burning of a ton of coal leads to the release of a certain amount of carbon dioxide into the atmosphere where it adds to the presently already increased stock of greenhouse gases. Consequently any further burning of coal is exacerbating the problem of climate change. This externality calls for political intervention on resource markets and the question arises which policies should be implemented. In this thesis, the multitude of optimal solutions taxation offers is derived.
Any analysis of possible policy options on this topic has to consider that fossil fuels are no normal goods. Their total supply over time is determined only by nature. The owner of a resource deposit earns profit by extracting a given stock in time. Correspondingly, the value of the resource deposits is being determined by the discounted stream of future profits that can be expected from selling the stock (which can be affected by future changes in regulation). This implies that a regulator should pay special attention to the reactions of the supply side of fossil resource markets to his policies, but it also allows him to use a broad range of regulation policies regarding taxation. The clue is to set different incentives to extract the resource at different points in time. The resulting multiplicity of policy options can be used to correct different kinds of market failure. Sinn summarized the relationship between political intervention and supply side reactions against the background of climate change in his theory of the ¿green paradox¿. It states that a lenient gradually tightening environmental policy leads to the counterproductive effect of falling resource prices and an increase in resource extraction in the present and the near future. This effect and the insight that gradually relaxing measures set the right incentives led Sinn to recommend falling tax rates as the optimal regulation policy to slow down climate change.
Another aspect that threatens the future profits of resource owners is the development of substitutes to fossil resources, for example alternative methods of energy production. The availability of those technologies sets an upper limit to the market price of fossil fuels and leads to a faster depletion of the (economically [...]