Taxation of Nuclear Rents: Benefits, Drawbacks and Alternatives

31 Pages Posted: 23 Sep 2011

See all articles by Pieter Himpens

Pieter Himpens

affiliation not provided to SSRN

Joris Morbee

Catholic University of Leuven (KUL) - Center for Economic Studies and Energy Institute

Stef Proost

KU Leuven - Department of Economics

Date Written: July 1, 2011

Abstract

The taxation of nuclear energy is studied using a stylized model of the electricity sector, with one dominant nuclear producer and a competitive fringe of fossil-fuel plants. We show that an unanticipated tax on nuclear production can generate significant government revenue in the short run without disturbing the market, but will harm investment incentives in the long run, especially if the government cannot credibly commit to a future tax rate. Even if the government is capable of credibly committing to an optimal long-run tax, government revenues from the long-run tax will be very low due to the market power of the incumbent. Lifetime extension agreements negotiated with multiple potential players, and competitive auctioning of new nuclear licenses are shown to be the most attractive policies. The analytical results are illustrated with a numerical simulation for the case of Belgium.

Keywords: electricity market, nuclear rent, taxation

JEL Classification: H25, L12, Q41, Q48

Suggested Citation

Himpens, Pieter and Morbee, Joris and Proost, Stef V., Taxation of Nuclear Rents: Benefits, Drawbacks and Alternatives (July 1, 2011). Available at SSRN: https://ssrn.com/abstract=1932607 or http://dx.doi.org/10.2139/ssrn.1932607

Pieter Himpens

affiliation not provided to SSRN ( email )

Joris Morbee (Contact Author)

Catholic University of Leuven (KUL) - Center for Economic Studies and Energy Institute ( email )

Belgium

Stef V. Proost

KU Leuven - Department of Economics ( email )

Leuven, B-3000
Belgium
016 32 66 35 (Phone)
016 32 67 96 (Fax)

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