Korean Energy Economic Review ISSN:1599-7057(Print) 에너지경제연구

This research is designed to analyze the optimal taxation for reducing carbon emitted from the consumption of fossil fuel imported by adopting a monoposonic modeling approach in which the importing country has a market power. We derived the optimal time path of the shadow cost of marginal damages incurred by fossil fuel consumption. On the basis of this result, we identified that if the production cost of fossil fuels is affected by the stock of it, the optimal taxation at each time is decomposed into two parts: One is that a pure Pigouvian tax should be levied which is the same as the shadow cost of marginal damages incurred by fossil fuels consumption and the other is that a tariff on fossil fuels imported should be imposed which is the same as the shadow value of the sock of it for importing country when the damage is absent. Otherwise, a pure Pigouvian tax is only levied to reduce the carbon emitted from the consumption of fossil fuels imported.