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Global Warming and the Green Paradox: A Review of Adverse Effects of Climate Policies

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  • Frederick van der Ploeg
  • Cees Withagen

Abstract

This article examines the possible adverse effects of well-intended climate policies, an outcome known as the Green Paradox. A weak Green Paradox arises if the announcement of a future carbon tax or a sufficiently fast rising carbon tax encourages fossil fuel owners to extract reserves more aggressively, thus exacerbating global warming. We argue that such policies may also encourage more fossil fuel to be locked in the crust of the earth, which can offset the adverse effects of the weak Green Paradox. We show that a subsidy on clean renewables may have similar weak Green Paradox effects. Green welfare (the converse of environmental damages) declines (i.e., the strong Green Paradox) if the beneficial climate effects of locking up more fossil fuel do not outweigh the short-run weak Green Paradox effects. Neither the weak nor the strong Green Paradox occurs for the first-best Pigouvian carbon tax. We also discuss dirty backstops, spatial carbon leakage, and green innovation.

Suggested Citation

  • Frederick van der Ploeg & Cees Withagen, 2015. "Global Warming and the Green Paradox: A Review of Adverse Effects of Climate Policies," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 9(2), pages 285-303.
    • Handle: RePEc:oup:renvpo:v:9:y:2015:i:2:p:285-303.
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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)

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