? 2022 The Author(s)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.
Climate changeCoalMarket powerOPEC
Hart R.、Gars J.
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Department of Economics Swedish University of Agricultural Sciences
NSTL
Elsevier
