The Impact of Carbon Taxes on the Value of Fossil-Fuel Reserves and the Efficiency of Climate Policy

Authors

William D. Nordhaus, Yale University

Document Type

Discussion Paper

Publication Date

8-11-2022

CFDP Number

2345

CFDP Pages

36

Journal of Economic Literature (JEL) Code(s)

Q3, Q4, C3

Abstract

The present study analyzes the impact of carbon pricing along with other policies on the value of fossil fuel resources, CO₂ emissions, and economic welfare. It employs a model based on the Hotelling analysis of resource values and calibrates this approach to data on fossil resources, costs, demands, and CO₂ emissions. Total fossil-fuel resource rents are today estimated to be $17 trillion (2021 US$) without carbon pricing. Oil and gas rents are unchanged for low carbon taxes but would decline by 40% with a $100/tCO₂ price. The losses in producer values would be only about 10% of the carbon tax revenues. The study also shows that other policies – such as ones involving ethical investing or subsidies for renewable energy – are very inefficient and poor substitutes for carbon pricing.

Recommended Citation

Nordhaus, William D., "The Impact of Carbon Taxes on the Value of Fossil-Fuel Reserves and the Efficiency of Climate Policy" (2022). Cowles Foundation Discussion Papers. 2751.
https://elischolar.library.yale.edu/cowles-discussion-paper-series/2751