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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. van der Ploeg, Frederick & Withagen, Cees, 2012. "Is there really a green paradox?," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 342-363.
  2. Markusen, James R. & Venables, Anthony J., 1986. "Trade Policy with Increasing Returns and Imperfect Competition: Contradictory Results from Competing Assumptions," CEPR Discussion Papers 120, C.E.P.R. Discussion Papers.
  3. Amigues, J.-P. & Favard, P. & Gaudet, G. & Moreaux, M., 1996. "On The Optimal Order of Natural Resourse Use When the Capacity of the Inexhaustible Substitute is Limited," Papers 96.431, Toulouse - GREMAQ.
  4. Quentin Grafton, R. & Kompas, Tom & Van Long, Ngo, 2012. "Substitution between biofuels and fossil fuels: Is there a green paradox?," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 328-341.
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  6. 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.
  7. 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.
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  12. Sinn, Hans-Werner, 2012. "The Green Paradox: A Supply-Side Approach to Global Warming," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262016680, January.
  13. Michael Hoel, 2011. "The Supply Side of CO2 with Country Heterogeneity," CESifo Working Paper Series 3393, CESifo Group Munich.
  14. Jon Strand, 2007. "Technology Treaties and Fossil-Fuels Extraction," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 129-142.
  15. Babiker, Mustafa H., 2005. "Climate change policy, market structure, and carbon leakage," Journal of International Economics, Elsevier, vol. 65(2), pages 421-445, March.
  16. Frederick van der Ploeg & Cees Withagen, 2011. "Too Much Coal, Too Little Oil," OxCarre Working Papers 056, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  17. Long, Ngo Van & Sinn, Hans-Werner, 1985. "Surprise Price Shifts, Tax Changes and the Supply Behaviour of Resource Extracting Firms," Australian Economic Papers, Wiley Blackwell, vol. 24(45), pages 278-89, December.
  18. Hoel, Michael, 2011. "The supply side of CO2 with country heterogeneity," Memorandum 08/2011, Oslo University, Department of Economics.
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