The Grey Paradox: How fossil-fuel owners can benefit from carbon taxation

Coulomb, Renaud; Henriet, Fanny

doi:10.1016/j.jeem.2017.07.001

Cited by 20 publications

(9 citation statements)

References 38 publications

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“…This version provides intuition how climate policy affects the investment in and valuation of exploration capital as well as the value of carbon under the ground and stock market value. Coulomb and Henriet (2018) and Coulomb et al (2019) show that the inclusion of several energy sources and source-specific capital can avert the asset stranding for certain fossil fuel types at the expense of other. and contrasts with first-best outcomes.…”

Section: Section 2 Reviews Empirical Evidence On the Drivers Of Discomentioning

confidence: 99%

The risk of policy tipping and stranded carbon assets

Ploeg

Rezai

2020

Journal of Environmental Economics and Management

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If global warming is to stay below 2°C, there are four risks of assets stranding. First, substantial fossil fuel reserves will be stranded at the end of the fossil era. Second, this will be true for exploration capital too. Third, unanticipated changes in present or expected future climate policy cause instantaneous discrete jumps in today's valuation of physical and natural capital. Fourth, if timing and intensity of climate policy are uncertain, revaluation of assets occurs as uncertainty about future climate policy is resolved. E.g. abandoning climate policy plans immediately boosts scarcity rent, market capitalization, exploration investment and discoveries. To explain and quantify these four effects, we use an analytical model of investment in exploration capital with intertemporal adjustment costs, depletion of reserves and market capitalization, and calibrate it to the global oil and gas industry. Climate policy implements a carbon budget commensurate with 2°C peak warming and we allow for different instruments: immediate or delayed carbon taxes and renewable subsidies. The social welfare ranking of these instruments is inverse to that of the oil and gas industry which prefers renewable subsidy and delaying taxes for as long as possible. We also pay attention to how the legislative "risk" of tipping into policy action affects the timing of the end of the fossil era, the profitability of existing capital, and green paradox effects.

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Section: Section 2 Reviews Empirical Evidence On the Drivers Of Discomentioning

confidence: 99%

The risk of policy tipping and stranded carbon assets

Ploeg

Rezai

2020

Journal of Environmental Economics and Management

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“…E.g. while in the end, all carbon has to be phased out, relative carbon intensities create a window of opportunity for some of the less carbonintensive energy carriers to step up production in tandem with intermittent renewable energy, softening the blow of carbon pricing and possibly even creating a brief hiatus (Coulomb and Henriet, 2018;Coulomb et al, 2019). Similar considerations apply for the regional distribution of carbon sources and the costs of their extraction and production.…”

Section: From Temperature Caps To Unburnable Fossil Fuel Depositsmentioning

confidence: 99%

Stranded Assets in the Transition to a Carbon-Free Economy

Ploeg

Rezai

2020

Annu. Rev. Resour. Econ.

123

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Assets in the fossil fuel industries are at risk of losing market value due to unanticipated breakthroughs in renewable technology and governments stepping up climate policies in light of the Paris commitments to limit global warming to 1.5 or 2°C. Stranded assets arise due to uncertainty about the future timing of these two types of events and substantial intertemporal and intersectoral investment adjustment costs. Stranding of assets mostly affects the 20 biggest oil, gas, and coal companies who have been responsible for at least one-third of global warming since 1965, but it also affects carbon-intensive industries such as steel, aluminum, cement, plastics, and greenhouse horticulture. A disorderly transition to the carbon-free economy will lead to stranded assets and legal claims. Institutional investors should be aware of these financial risks. A broader definition of stranded assets also includes countries reliant on fossil fuel exports and workers with technology-specific skills. Expected final online publication date for the Annual Review of Resource Economics, Volume 12 is October 5, 2020. Please see http://www.annualreviews.org/page/journal/pubdates for revised estimates.

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“…If the equilibrium price of oil falls to the medium term from the short term due to the tax, making investments for exploration and expansion of current reserves in order to be able to increase the present supply will increase the supply not in the short term but in the following period (Cairns, 2014). Moreover, as a global carbon tax affects fossil fuel producing countries' profits throughout the competition and timing effects, it is needed to include oil and coal producing countries separately in the analysis of global carbon emissions (see Coulomb, Henriet, 2018).…”

Section: Carbon Tax and Carbon Leakagementioning

confidence: 99%

Carbon Leakage Along with the Green Paradox Against Carbon Abatement? A Review Based on Carbon Tax

Akkaya

Bakkal

2020

Folia Oeconomica Stetinensia

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Research background: Insufficient global cooperation in carbon pricing against global warming has the risk of global carbon emissions rise because of carbon leakage. The effect of a carbon tax on the present supply of fossil fuels is also valuable in regard to global carbon emissions.Purpose: The purpose of this study is to gain more insights into the effects of carbon leakage along with the green paradox on global carbon emissions by reviewing the relevant literature.Research methodology: We provide the problem linked to carbon leakage and the green paradox in the introduction. Then, the effects of carbon leakage and the green paradox on global carbon emissions are elaborated separately. Finally the mutual effects of carbon leakage and the green paradox are reviewed comprehensively.Results: It is seen that various factors like interest rates, fossil fuel extraction costs, the fossil fuel reserves to be discovered in the future and carbon tax incidence are equally important determinants in regard to global carbon emissions.Novelty: This study provides an insight into the mutual effects of carbon leakage and the green paradox on global carbon emissions by reviewing the primary literature in the field.

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The Grey Paradox: How fossil-fuel owners can benefit from carbon taxation

Cited by 20 publications

References 38 publications

The risk of policy tipping and stranded carbon assets

The risk of policy tipping and stranded carbon assets

Stranded Assets in the Transition to a Carbon-Free Economy

Carbon Leakage Along with the Green Paradox Against Carbon Abatement? A Review Based on Carbon Tax

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