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Simultaneous Supplies of Dirty and Green Fuels with Capacity Constraint: Is there a Green Paradox?

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  • Marc Gronwald
  • Ngo Van Long
  • Luise Röpke

Abstract

This paper contributes to the green paradox literature by using a resource extraction framework with heterogeneous energy sources. A key feature of the model is a capacity constrained green backstop resource, which implies the simultaneous use of the expensive backstop resource and the cheaper exhaustible resources, over some interval of time. Two dirty exhaustible resources are considered, reflecting cost structure and carbon content heterogeneities of energy sources. The policies under consideration are taxation of the dirty resources and the promotion of the green resource via subsidies or capacity-increasing measures. The key findings, compared to a baseline scenario without policy intervention, are that (1) expanding the capacity of the green sector can decrease social welfare, (2) both green energy promotion measures lead to increases in short-term emissions, and (3) none of the analyzed policy measures leads to a decrease in the aggregate duration of the extraction of the exhaustible resources.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4360.

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Date of creation: 2013
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Handle: RePEc:ces:ceswps:_4360

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Related research

Keywords: capacity constraints; green paradox; climate change;

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References

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  1. Amigues, J-P & Favard, P.author-name: Gaudet, G. & Moreaux, M, 1996. "On the Optimal Order of Natural Resource Use When the Capacity of the Inexhaustible Substitute is Limited," Cahiers de recherche, Centre interuniversitaire de recherche en économie quantitative, CIREQ 9628, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
  2. Edwin van der Werf & Corrado Di Maria, 2011. "Unintended Detrimental Effects of Environmental Policy: The Green Paradox and Beyond," CESifo Working Paper Series 3466, CESifo Group Munich.
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  13. Jon Strand, 2007. "Technology Treaties and Fossil-Fuels Extraction," The Energy Journal, International Association for Energy Economics, International Association for Energy Economics, vol. 0(Number 4), pages 129-142.
  14. Ujjayant Chakravorty & Michel Moreaux & Mabel Tidball, 2008. "Ordering the Extraction of Polluting Nonrenewable Resources," American Economic Review, American Economic Association, American Economic Association, vol. 98(3), pages 1128-44, June.
  15. Markusen, James R. & Venables, Anthony J., 1986. "Trade Policy with Increasing Returns and Imperfect Competition: Contradictory Results from Competing Assumptions," CEPR Discussion Papers, C.E.P.R. Discussion Papers 120, C.E.P.R. Discussion Papers.
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  17. Farzin, Y H & Tahvonen, O, 1996. "Global Carbon Cycle and the Optimal Time Path of a Carbon Tax," Oxford Economic Papers, Oxford University Press, vol. 48(4), pages 515-36, October.
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