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Too Much Oil

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  • Reyer Gerlagh

Abstract

Fear for oil exhaustion and its consequences for economic growth has been a driver of a rich literature on exhaustible resources. But our view on oil has remarkably changed. We now also worry about too much oil because of climate change damages associated with oil and other fossil fuel use. In this climate change debate, economists have pointed to a green paradox: when policy makers stimulate the development of low carbon energy sources to (partly) replace fossil fuels in the future, oil markets may anticipate a future reduction in demand and increase current supply. The availability of 'green' technologies may increase damages. The insight comes from the basic exhaustible resource model. We reproduce the green paradox, and to facilitate discussion, differentiate between a weak and a strong version, related to short-term and long-term effects, respectively. Then we analyze the green paradox in two standard modifications of the exhaustible resource model. We find that increasing fossil fuel extraction costs counteracts the strong green paradox, while imperfect energy substitutes may make both the weak and strong green paradox vanish. (JEL codes: Q31 and Q54) Copyright The Author 2010. Published by Oxford University Press on behalf of Ifo Institute for Economic Research, Munich. All rights reserved. For permissions, please email: journals.permissions@oup.com, Oxford University Press.

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Bibliographic Info

Article provided by CESifo in its journal CESifo Economic Studies.

Volume (Year): 57 (2011)
Issue (Month): 1 (March)
Pages: 79-102

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Handle: RePEc:oup:cesifo:v:57:y:2011:i:1:p:79-102

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References

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  1. Daniel J.A. Johansson & Christian Azar & Kristian Lindgren & Tobias A. Persson , 2009. "OPEC Strategies and Oil Rent in a Climate Conscious World," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 23-50.
  2. Copeland,B.R. & Taylor,M.S., 2000. "Free trade and global warming : a trade theory view of the Kyoto protocol," Working papers 4, Wisconsin Madison - Social Systems.
  3. Di Maria, C. & Werf, E.H. van der, 2005. "Carbon Leakage Revisited: Unilateral Climate Policy with Directed Technical Change," Discussion Paper 2005-68, Tilburg University, Center for Economic Research.
  4. Michael Hoel, 2008. "Bush Meets Hotelling: Effects of Improved Renewable Energy Technology on Greenhouse Gas Emissions," CESifo Working Paper Series 2492, CESifo Group Munich.
  5. Sinclair, Peter J N, 1992. "High Does Nothing and Rising Is Worse: Carbon Taxes Should Keep Declining to Cut Harmful Emissions," The Manchester School of Economic & Social Studies, University of Manchester, vol. 60(1), pages 41-52, March.
  6. Snorre Kverndokk, 1994. "Depletion of Fossil Fuels and the impact of Global Warming," Discussion Papers 107, Research Department of Statistics Norway.
  7. Jon Strand, 2007. "Technology Treaties and Fossil-Fuels Extraction," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 129-142.
  8. Hans-Werner Sinn, 2008. "Public policies against global warming: a supply side approach," International Tax and Public Finance, Springer, vol. 15(4), pages 360-394, August.
  9. Persson, Tobias A. & Azar, C. & Johansson, D. & Lindgren, K., 2007. "Major oil exporters may profit rather than lose, in a carbon-constrained world," Energy Policy, Elsevier, vol. 35(12), pages 6346-6353, December.
  10. Corrado Di Maria & Sjak Smulders & Edwin van der Werf, 2008. "Absolute Abundance and Relative Scarcity: Announced Policy, Resource Extraction, and Carbon Emissions," Working Papers 2008.92, Fondazione Eni Enrico Mattei.
  11. Ulph, Alistair & Ulph, David, 1994. "The Optimal Time Path of a Carbon Tax," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 857-68, Supplemen.
  12. Reyer Gerlagh & Onno Kuik, 2007. "Carbon Leakage with International Technology Spillovers," Working Papers 2007.33, Fondazione Eni Enrico Mattei.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. The green paradox
    by Economic Logician in Economic Logic on 2010-03-30 14:18:00
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Cited by:
  1. Daubanes, Julien & Grimaud, André & Rougé, Luc, 2012. "Green Paradox and Directed Technical Change: The Effects of Subsidies to Clean R&D," TSE Working Papers 12-337, Toulouse School of Economics (TSE).
  2. Hart, Rob & Spiro, Daniel, 2011. "The elephant in Hotelling's room," Energy Policy, Elsevier, vol. 39(12), pages 7834-7838.
  3. Michael Hoel, 2013. "Supply Side Climate Policy and the Green Paradox," CESifo Working Paper Series 4094, CESifo Group Munich.
  4. Mads Greaker & Michael Hoel & Knut Einar Rosendahl, 2012. "Does a renewable fuel standard for biofuels reduce climate costs?," Discussion Papers 720, Research Department of Statistics Norway.
  5. Matthias Kalkuhl & Ottmar Edenhofer & Kai Lessmann, 2012. "The Role of Carbon Capture and Sequestration Policies for Climate Change Mitigation," CESifo Working Paper Series 3834, CESifo Group Munich.
  6. Ngo Long, 2011. "Dynamic Games in the Economics of Natural Resources: A Survey," Dynamic Games and Applications, Springer, vol. 1(1), pages 115-148, March.
  7. Thomas Eichner & Rüdiger Pethig, 2011. "Flattening the carbon extraction path in unilateral cost-effective action," Volkswirtschaftliche Diskussionsbeiträge 151-11, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  8. Mark Schopf & Hendrik Ritter, 2012. "Reassessing the Green Paradox," Working Papers 51, University of Paderborn, CIE Center for International Economics.
  9. Ngo Long, 2011. "Dynamic Games in the Economics of Natural Resources: A Survey," International Review of Economics, Springer, vol. 1(1), pages 115-148, March.
  10. Michael Hoel, 2010. "Climate Change and Carbon Tax Expectations," CESifo Working Paper Series 2966, CESifo Group Munich.
  11. Michielsen, T.O., 2011. "Brown Backstops versus the Green Paradox (Replaced by CentER DP 2011-110)," Discussion Paper 2011-076, Tilburg University, Center for Economic Research.
  12. Frederick Van der Ploeg & Cees A. Withagen, 2011. "Too Little Oil, Too Much Coal: Optimal Carbon Tax and when to Phase in Oil, Coal and Renewables," CESifo Working Paper Series 3526, CESifo Group Munich.
  13. Habermacher, Florian & Kirchgässner, Gebhard, 2011. "Climate Effects of Carbon Taxes, Taking into Account Possible Other Future Climate Measures," Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis 48717, Verein für Socialpolitik / German Economic Association.
  14. Fischer, Carolyn & Salant, Stephen, 2012. "Alternative Climate Policies and Intertemporal Emissions Leakage: Quantifying the Green Paradox," Discussion Papers dp-12-16, Resources For the Future.
  15. Edenhofer, Ottmar & Kalkuhl, Matthias, 2011. "When do increasing carbon taxes accelerate global warming? A note on the green paradox," Energy Policy, Elsevier, vol. 39(4), pages 2208-2212, April.
  16. Julien Daubanes & Pierre Lasserre, 2012. "Non-Renewable Resource Supply: Substitution Effect, Compensation Effect, and All That," CIRANO Working Papers 2012s-28, CIRANO.
  17. Kristine Grimsrud & Knut Einar Rosendahl & Halvor Briseid Storrøsten & Marina Tsygankova, 2013. "Short run effects of bleaker prospects for oligopolistic producers of a non-renewable resource," Discussion Papers 733, Research Department of Statistics Norway.
  18. Michielsen, T.O., 2011. "Brown Backstops versus the Green Paradox (Revision of CentER DP 2011-076)," Discussion Paper 2011-110, Tilburg University, Center for Economic Research.
  19. Wie, Jiegen & Wennlock, Magnus & Johansson, Daniel J.A. & Sterner, Thomas, 2011. "The Fossil Endgame: Strategic Oil Price Discrimination and Carbon Taxation," Discussion Papers dp-11-26, Resources For the Future.

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