GLOBAL CARBON CYCLE AND THE OPTIMAL TIME PATH OF A CARBON TAX

The existing models of fossil fuel consumption with carbon accumulationimply that the optimal time path of carbon tax is either hump-shapedor monotonically decreasing. These models specify the decayof atmospheric carbon as a constant rate of total concentration.We extend this specification to more accurately reflect theglobal carbon cycle models of climatologists and show that thisextension changes the basic economic properties of the optimalcarbon tax. Our analysis reveals that the optimal carbon taxmay as well be constant through time, increase monotonically,or have a U-shape. In addition, optimal resource extractionmay have an open-close- open cycle.