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Unilateral Climate Policy: Harmful or even Disastrous?

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Author Info

  • Hendrik Ritter

    ()
    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Mark Schopf

    ()
    (Faculty of Business Administration and Economics, University of Paderborn)

Abstract

This paper deals with possible foreign reactions to unilateral carbon demand reducing policies. It differentiates between demand side and supply side reactions as well as between intra- and intertemporal shifts in greenhouse gas emissions. In our model, we integrate a stock-dependent marginal physical cost of extracting fossil fuels into Eichner & Pethig's (2011) general equilibrium carbon leakage model. The results are as follows: Under similar but somewhat tighter conditions than those derived by Eichner & Pethig (2011), a weak green paradox arises. Furthermore, a strong green paradox can arise in our model under supplementary constraints. That means a "green" policy measure might not only lead to a harmful acceleration of fossil fuel extraction but to an increase in the cumulative climate damages at the same time. In some of these cases there is even a cumulative extraction expansion, which we consider disastrous.

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File URL: http://www.fww.ovgu.de/fww_media/femm/femm_2013/2013_10.pdf
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Bibliographic Info

Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 130010.

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Length: 30 pages
Date of creation: Jun 2013
Date of revision:
Handle: RePEc:mag:wpaper:130010

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Keywords: Natural Resources; Carbon Leakage; Green Paradox;

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References

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  1. Thomas Eichner & Rüdiger Pethig, 2011. "Flattening the Carbon Extraction Path in Unilateral Cost-Effective Action," CESifo Working Paper Series 3546, CESifo Group Munich.
  2. 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.
  3. 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.
  4. R. Quentin Grafton & Tom Kompas & Ngo Van Long, 2010. "Biofuels Subsidies and the Green Paradox," CESifo Working Paper Series 2960, CESifo Group Munich.
  5. Frederick van der Ploeg & Cees Withagen, 2010. "Is there really a Green Paradox?," Tinbergen Institute Discussion Papers 10-020/3, Tinbergen Institute, revised 27 Aug 2012.
  6. Corrado Di Maria & Edwin van der Werf, 2006. "Carbon Leakage Revisited: Unilateral Climate Policy with Directed Technical Change," Working Papers 2006.94, Fondazione Eni Enrico Mattei.
  7. Thomas Eichner & Rüdiger Pethig, 2009. "Carbon leakage, the green paradox and perfect future markets," Volkswirtschaftliche Diskussionsbeiträge 136-09, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  8. Reyer Gerlagh, 2011. "Too Much Oil," CESifo Economic Studies, CESifo, vol. 57(1), pages 79-102, March.
  9. Harold Hotelling, 1931. "The Economics of Exhaustible Resources," Journal of Political Economy, University of Chicago Press, vol. 39, pages 137.
  10. 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.
  11. Michael Hoel & Svenn Jensen, 2010. "Cutting Costs of Catching Carbon. Intertemporal effects under imperfect climate policy," Discussion Papers 639, Research Department of Statistics Norway.
  12. Frederick van der Ploeg & Cees Withagen, 2010. "Is there really a Green Paradox?," Tinbergen Institute Discussion Papers 10-020/3, Tinbergen Institute, revised 27 Aug 2012.
  13. Sinclair, Peter J N, 1994. "On the Optimum Trend of Fossil Fuel Taxation," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 869-77, Supplemen.
  14. 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.
  15. 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.
  16. Hoel, Michael & Jensen, Svenn, 2012. "Cutting costs of catching carbon—Intertemporal effects under imperfect climate policy," Resource and Energy Economics, Elsevier, vol. 34(4), pages 680-695.
  17. B�rd Harstad, 2012. "Buy Coal! A Case for Supply-Side Environmental Policy," Journal of Political Economy, University of Chicago Press, vol. 120(1), pages 77 - 115.
  18. Michael Hoel, 2011. "The Supply Side of CO2 with Country Heterogeneity," CESifo Working Paper Series 3393, CESifo Group Munich.
  19. van der Werf, Edwin & Di Maria, Corrado, 2012. "Imperfect Environmental Policy and Polluting Emissions: The Green Paradox and Beyond," International Review of Environmental and Resource Economics, now publishers, vol. 6(2), pages 153-194, March.
  20. Hoel, Michael, 2011. "The supply side of CO2 with country heterogeneity," Memorandum 08/2011, Oslo University, Department of Economics.
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Cited by:
  1. Mark Schopf, 2013. "Preserving Eastern or Offshore Oil for Preventing Green Paradoxes?," Working Papers 63, University of Paderborn, CIE Center for International Economics.
  2. Frederick van der Ploeg & Cees Withagen, 2013. "Global Warming and the Green Paradox," OxCarre Working Papers 116, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.

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