REGULATORY TAXATION OF FOSSIL-FUELS - THEORY AND POLICY

Research on energy taxation is often based on purely theoretical deduc tions. This paper stays closer to the real world, using empirical data and interpreting results in a political-economic setting of risk and uncertainty. Economic growth in developing countries will boost energy demand, increasing the risk of shortages of oil and natural gas half- way through the next century, and of coal towards the year 2100. Furth ermore, there is mounting evidence that emissions of CO2 trigger harmf ul climate changes. A timely introduction of regulatory taxes will red uce demand for fossil fuels and accelerate the introduction of sustain able technology. The empirical results presented show, moreover, that such taxes may claim a substantial part of the rent on energy extracti on for the energy-importing countries. It is argued that optimal contr ol and the avoidance of displacement effects require a tax affecting m arginal use, with exceptions to safeguard competitive positions. Excep tions may be scaled down as the jurisdiction is enlarged.