Coase, Hotelling and Pigou: The Incidence of a Carbon Tax and CO₂ Emissions

Geoffrey Heal, Wolfram Schlenker

NBER Working Paper No. 26086
Issued in July 2019, Revised in June 2020
NBER Program(s):Environment and Energy Economics

We use field-level cost estimates of all oil and natural gas fields to highlight dynamic aspects of a global carbon tax. Some of the initial reduction in consumption will be offset through higher consumption later on. Only high-cost reserves will be priced out of the market, e.g., at 200 dollars per ton of CO₂ cumulative emissions decrease by 4%. The tax incidence initially falls on consumers under a constant tax but eventually becomes negative as the lifetime of the resources is extended. An increasing tax over time reduces the initial incidence on consumers.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w26086