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The Green Paradox in Open Economies

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  • Ngo Van Long

Abstract

This paper explains how, in the context of incomplete coordination among all countries, unilateral policies that might at first sight seem pro-green could actually turn out to harm the global environment. The free-riding motives and the difficulty of reaching an effective international environmental agreement are reviewed. As a first step, the various channels that lead to carbon leakage in static models of open economies are identified, and some simulation results are reported. This is complemented by a review of the possibility of green paradox outcomes in dynamic open-economy models with an exhaustible resource exploited by far-sighted firms. It is shown that border tax adjustments can lead to a green paradox outcome. Directions for future research are suggested.

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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 4639.

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Date of creation: 2014
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Handle: RePEc:ces:ceswps:_4639

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Keywords: green paradox; climate change; carbon leakage;

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