Publication Date:
2015-07-18
Description:
How important is the Green Paradox? We address this question in three ways. First, we present a simple model explaining how announcing a future climate policy may increase carbon emissions today – the Green Paradox effect. This effect is a result of fossil fuel producers increasing their extraction today as a response to a reduction in future resource rents. Second, we examine the theoretical and empirical literature to assess whether green paradoxes are likely to occur, and if they are, whether they are big enough to be of concern for policy makers. We consider several factors that affect the existence of the green paradox, including long-term extraction costs, short-term extraction capacities, the mix of policy instruments, and potential spatial carbon leakage to countries that have no climate policy. We find that these and other factors can sometimes strengthen, but mostly weaken, the case for concern about the green paradox. Third, we identify the lessons the literature offers for policy makers. We argue that in designing climate policy, policy makers need to consider the supply side of the fossil fuel market.
Keywords:
H23 - Externalities
;
Redistributive Effects
;
Environmental Taxes and Subsidies, Q31 - Demand and Supply, Q38 - Government Policy, Q54 - Climate
;
Natural Disasters
;
Global Warming
Print ISSN:
1750-6816
Electronic ISSN:
1750-6824
Topics:
Energy, Environment Protection, Nuclear Power Engineering
,
Political Science
,
Economics
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