GTAP Resources: Resource Display
| GTAP Resource #1226 |
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"Optimal Pricing of Petroleum with Budget Constraint and Externality" by Huang, Chung-Huang Abstract As market liberalization is becoming the main stream and the general public is much more concerned about the welfare effects of current pricing rule, it is imperative to consider alternative pricing rules that could achieve both welfare maximization and budget balance. For this purpose, Ramsey pricing rule may be proposed. The pricing rule with environmental externalities integrated, however, is not satisfactorily developed, especially when multiple pollutants are generated from petroleum consumption. Emission fee is the typical instrument to internalize externality. As input (such as petroleum) is considered in the literature a better tax base than output (e.g., pollutant emission) particularly when transaction cost is ineligible, the Environmental Protection Administration (EPA) in Taiwan is in the right tract by choosing petroleum commodities as tax base. Nevertheless, the rate was set independently from the energy authorities by EPA without resorting to the energy market and emerging need for budget balance in energy pricing. Consequently, not only the emission fee is problematic in terms of its potential divergence from the socially optimal level, but also such an ad hoc addition of the emission fee to the petroleum price set by CPC can hardly lead to a Ramsey price that effectively internalizes externalities. This paper identifies the sources contributing to price distortion of energy prevailing in Taiwan. These include market structure distortion, price distortion, taxation distortion, and cost distortion. A Ramsey pricing rule is developed that takes into account the environmental externalities generated by energy consumption. Empirical results indicate that the current price structure should be adjusted substantially to meet the goals of Ramsey pricing. The economic impacts of adopting Ramsey pricing rule are examined by applying the Dynamic Taiwan General Equilibrium Model (TAIGEM-D). The framework of TAIGEM-D is also briefly described. In addition, the economic impacts of eliminating market structure distortion as well as tariffs on energy are evaluated. |
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Public Access  GTAP Resource 1226 (750.2 KB) Replicated: 0 time(s) PDF Version (1.2 MB) Replicated: 0 time(s)Restricted Access No documents have been attached. Special Instructions No instructions have been specified. |
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Last Modified: 9/15/2023 2:05:45 PM
