Inferring fossil-fuel subsidies from patterns in emission intensities

VoxEU: No comprehensive database of directly measured fossil-fuel subsidies exists at the international or the sub-national level, yet subsidies may be crucial drivers of global carbon emissions. This column describes a novel method for inferring carbon subsidies by examining country-specific patterns in carbon emission-to-output ratios, known as emission intensities. Calculations for 155 nations from 1980-2005 reveal that fossil-fuel price distortions are enormous, increasing, and often hidden. These subsidies contributed importantly to increasing emissions and lower growth.

Tax policies in resource rich economies

VoxEU: Resource-rich countries face a peculiar set of challenges; natural wealth can be both a blessing and a curse. This column looks at links between natural resource revenues and other taxes. Results suggest that these countries tend to substitute domestic taxes with natural-resource-based revenue; 30 cents in non-resource tax revenue are lost with each dollar of resource revenue. Worryingly, the substitution occurs disproportionately for growth-friendly taxes.

The Dutch Disease in Reverse: Iceland’s Natural Experiment

OxCarre WP: Abundant natural resources brought Iceland a systemically overvalued currency, with adverse
effects on the secondary tradable sector. During 2003-2008 another national treasure, the sovereign’s AAA rating, was used to attract foreign capital, elevating the real exchange rate even further. The financial collapse in 2008 left the country with a large foreign debt without the possibility of rollovers in international capital markets. This offset some of the effect of the natural resources on the real exchange rate; in effect, this was the Dutch disease in reverse as witnessed, in particular, by a massive increase in the number of tourists in recent years.

Bribes, Favors, and a Billion-Dollar Yacht: Inside the Crazy World of the Men Who Do Oil Companies' Dirty Work

Mother Jones: When big oil companies like Exxon-Mobil and Chevron set their sights on a prime new oil reserve in Africa, Asia, or the Middle East, the first phone call they make usually isn't to the government office putting it up for sale. Instead, they ring up one of their contacts in a small, elite group of so-called "fixers," a shady cabal of a few dozen well-connected billionaires who hold the strings on the market for the world's most valuable commodity. The fixer gets a fat fee and a straightforward assignment: Do whatever you need to do to get us those oil rights.

Resource Concentration and Civil Wars

NBER WP: This paper highlights the importance of natural resource concentration and ethnic group regional concentration for ethnic conflict. A new type of bargaining failure due to multiple types of potential conflicts (and hence multiple threat points) is identified. The theory predicts war to be more likely when resource and group concentration are high, and the empirical analysis, both at the country level and at the ethnic group level, confirms the essential role of geographic concentration variables for civil war.

Limit-Pricing and the (Un)Effectiveness of the Carbon Tax

OxCarre WP: All existing studies on the design of the optimal carbon tax assume that such instrument can effectively curb current carbon emissions. Yet as this paper argues, the effectiveness of a carbon tax is very limited when limit pricing arises on the oil market. Demand for energy, for fossil fuels like oil in particular, is notoriously very price inelastic, even in the long run. Facing such demand, an extractive cartel may increase its profits with higher prices, as long as those prices do not destroy its demand. The demand for oil features kinks, each corresponding to the entry price of one competing substitute. Some substitutes may be tolerated by an oil-extracting cartel (e.g. other fuels, including existing biofuels, solar and wind sources of energy...). However, when a substitution possibility has the potential to drastically deteriorate its market share, the cartel maximizes its profits by inducing the “limit price” that deters its entry. Limitpricing equilibria of non-renewable resource markets sharply differ from the conventional Hotelling outcome; for instance, taxes on the cartel’s resource become neutral regardless of their dynamics. Environmental policies may still reduce current extraction quantities when limit pricing occurs. For that, policies must support the production of existing substitutes, i.e. those not deterred by the cartel’s pricing. Unlike it, a carbon tax may increase current oil extraction: while its direct application to the oil (carbon) resource may be neutral, its application to oil’s (carbon) substitutes induces higher oil production.

Optimal environmental policy, public goods and labor markets over the business cycle

OxCarre WP: This paper studies the design of optimal fiscal policy in a real business cycle model with distortionary taxes and a climate change externality. Governments face the dual task of internalizing environmental externalities and raising revenues to finance the provision of public goods, including public capital. At their disposal governments have access to two tax instruments: tax on emissions and labor tax. We fi nd that a tax on labor is an e fficient instrument to finance public spending and facilitate the adjustment of the economy to the temporary improvement in productivity. Therefore, labor tax is cut in the model. Tax on emissions follows a distinct pattern depending on whether the potential economic expansion in response to a positive productivity shock is strong or weak: it is procyclical in the model that features public capital and is countercyclical in the models with public consumption only. The model implies that by restraining or boosting expansion in the short-run, the optimal carbon tax policy can help policymakers reconcile short-term concerns over economic growth with longer-term risks from climate change. The welfare gains from such short-run policies are non-negligible and can amount to USD 121.9 bn or 0.7% of the US GDP.

Oil in South Sudan

IGC WP: Based on new research on oil exploration in developing countries, this note makes the simple but significant point that favourable geology may not alone be enough for South Sudan to induce additional oil exploration, investments and production. The institutions and policies put in place by the government are likely to make a difference for the exploration activities and therefore also the likelihood of discovering new oil reserves. Furthermore, the institutions and policies put in place are also likely to matter for the recovery rates of proven reserves.

Oil and Gas Outlook by The Times' Raconteur

Outlook here. Check page 8 for an OxCarre expert's view on avoiding the resource curse.

Dictators Walking the Mogadishu Line

OxCarre WP: History offers many examples of dictators who worsened their behavior signi…ficantly over time (like Zimbabwe’s Robert Mugabe), while there are also cases of dictators who have displayed remarkable improvements (like Jerry Rawlings of Ghana). We show that such mutations can result from rational behavior when the dictator’s fl‡ow use of repression is complementary to his accumulated stock of wrongdoings. This complementarity gives rise to two steady states (one where repression is low and one where repression is high) and implies that any individual rising to power in this setup has the potential to end up as either a moderate leader, or as a dreaded tyrant. Our model shows that dictators are more likely to derail with higher levels of divertible funds available, for example stemming from fungible aid infl‡ows or from the exploitation of natural resources.

Film exposes shady oil deals in Congo's Virunga National Park

Trust.org: When British filmmaker Orlando von Einsiedel set off to eastern Congo to start filming a documentary about Virunga National Park, he wanted to tell a positive story of rangers saving endangered mountain gorillas from poachers. Little did he know that his film about the park would become an exposé of the corrupt ways of an international oil company that had set its sight on the park, a UNESCO World Heritage site...

Greening Economics: It is time

VoxEU: The concept of environmental capital is throughly entrenched in policy dicussions but largely missing from mainstream economic curriculums. This column argues environmental externalities, climate change, and constraints on natural resources will constantly and deeply affect humankind’s future. The teaching of economics, especially growth economics, should stop ignoring them.