Prices vs. Quantities and the Intertemporal Dynamics of the Climate Rent

40 Pages Posted: 14 May 2010

See all articles by Matthias Kalkuhl

Matthias Kalkuhl

University of Bonn - Center for Development Research (ZEF); Potsdam-Institut für Klimafolgenforschung (PIK)

Ottmar Edenhofer

Potsdam Institute for Climate Impact Research (PIK); Mercator Research Institute on Global Commons and Climate Change (MCC); Technische Universität Berlin (TU Berlin)

Date Written: May 1, 2010

Abstract

This paper provides a formal survey of price and quantity instruments for mitigating global warming. We explicitly consider policies’ impact on the incentives of resource owners who maximize their profits intertemporally. We focus on the informational and commitment requirements of the regulator. Furthermore, we study the interplay between (private) resource extraction rent and (public) climate rent and ask how property and management of the climate rent can be assigned between regulator and resource sector. There are only two instruments that unburden the regulator from the complex intertemporal management of the climate rent and associated commitment problems: in the cost-benefit world, we derive a stock-dependent tax rule; in the cost-effective (carbon budget) world, only an emissions trading scheme with free banking and borrowing can shift intertemporal timing decisions completely to the market.

Keywords: Resource Extraction, Climate Rent, Intertemporal Policy Instruments, Prices vs. Quantities, Hotelling

JEL Classification: Q32, Q38, Q54, Q58, H23

Suggested Citation

Kalkuhl, Matthias and Edenhofer, Ottmar, Prices vs. Quantities and the Intertemporal Dynamics of the Climate Rent (May 1, 2010). CESifo Working Paper Series No. 3044, Available at SSRN: https://ssrn.com/abstract=1605112 or http://dx.doi.org/10.2139/ssrn.1605112

Matthias Kalkuhl

University of Bonn - Center for Development Research (ZEF) ( email )

Walter-Flex-Str. 3
Bonn, NRW 53113
Germany

Potsdam-Institut für Klimafolgenforschung (PIK) ( email )

Telegraphenberg
Potsdam, Brandenburg 14412
Germany

Ottmar Edenhofer (Contact Author)

Potsdam Institute for Climate Impact Research (PIK) ( email )

P.O. Box 601203
14412 Potsdam, Brandenburg
Germany

Mercator Research Institute on Global Commons and Climate Change (MCC)

Torgauer Straße 12-15
Berlin, 10829
Germany

Technische Universität Berlin (TU Berlin)

Straße des 17
Juni 135
Berlin, 10623
Germany

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