MARKET POWER, INTERNATIONAL CO2 TAXATION AND OIL WEALTH

We present an intertemporal equilibrium model for fossil fuels, and st udy the effects on oil prices, extraction paths and oil wealth of an i nternational carbon tax on fossil fuel consumption Our conclusion is t hat a carbon tax will hurt OPEC more than other producers, as the cart el is induced by its market power to restrain production in order to m aintain the oil price. Thus, the effects on the oil wealth of the comp etitive fringe are minor, while OPEC's wealth is considerably reduced. We also show by applying a competitive model that this result is due to market structure, and not to differences in the resource base.