Fossil fuel stock

1
Figure 16.1 The structure of the aggregate stock
pollution model
 
Fossil fuel stock
Fossil fuel extraction
Production
Pollution flows
Capital stock
Consumption
Clean-up or defensive expenditure
Utility
Environmental pressure
Pollution stocks
Welfare
2
The following slides show the steps building up
to Figure 16.2, then Figure 16.2 itself.
3
units of utility
Pt
Net Price
time, t
?
4
units of utility
Pt??R
Marginal extraction cost
Pt
Net Price
time, t
?
5
units of utility
Pt??RUEER
Utility flow damage
Pt??R
Pt
time, t
?
6
Pt??RUEER-?QEER
units of utility
Pt??R-UEER
Pollution flow damage
Pt??R
Pt
time, t
?
7
Figure 16.2 Optimal time paths for the variables
of the pollution model.
units of utility
Pt??R-UEER-?QEER-?MR
Pt??R-UEER-?QEER
Stock damage
Pt??R-UEER
Pt??R
Pt
time, t
?
8
Figure 16.3 Optimal three part pollution taxes.
units of utility
Stock damage tax
Pollution flow damage tax

Utility damage tax
Gross Price
Pt
time, t
?
9
utility units
utility units
MC
MC (Social)
MB
MB ?QR
MC (Private)
?QR
Optimal tax
M
M
M
M
Notes MC MC (social) P ??R UE ER - ?QE
ER - ?MR MC (private) P ??R
Optimal tax UE ER - ?QE ER - ?MR
MB ?QR
Figure 16.4 Optimal taxes and the wedge between
private and social costs.
10
b
a
c
d
Figure 16.5 Steady state solution and dynamics
of the waste accumulation and disposal model.