Efficient Management of Insecure Fossil Fuel Imports Through Taxing (!) Domestic Green Energy?

30 Pages Posted: 1 Jun 2010

See all articles by Thomas Eichner

Thomas Eichner

University of Siegen - School of Economic Disciplines

Rudiger Pethig

University of Siegen - School of Economic Disciplines; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: May 1, 2010

Abstract

A small open economy produces a consumer good, green and black energy, and imports fossil fuel at an uncertain price. Unregulated competitive markets are shown to be inefficient. The implied market failures are due to the agents’ attitudes toward risk, to risk shifting and the uniform price for both types of energy. Under the plausible assumptions that consumers are prudent and at least as risk averse as the producers of black energy, the risk can be efficiently managed by taxing emissions and green energy. The need to tax (!) green energy contradicts the widespread view that subsidization of green energy is an appropriate means to enhance energy security in countries depending on risky fossil fuel imports.

Keywords: Price Uuncertainty, Black Energy, Green Energy, Fossil Fuel

JEL Classification: F18, Q42, Q48

Suggested Citation

Eichner, Thomas and Pethig, Rudiger, Efficient Management of Insecure Fossil Fuel Imports Through Taxing (!) Domestic Green Energy? (May 1, 2010). CESifo Working Paper Series No. 3062. Available at SSRN: https://ssrn.com/abstract=1618227

Thomas Eichner

University of Siegen - School of Economic Disciplines ( email )

Hoelderlinstrasse 3
57068 Siegen
Germany

Rudiger Pethig (Contact Author)

University of Siegen - School of Economic Disciplines ( email )

Hoelderlinstrasse 3
57068 Siegen
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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