When do increasing carbon taxes accelerate global warming? A note on the green paradox
The "green paradox" by Hans-Werner Sinn suggests that increasing resource taxes accelerate global warming because resource owners increase near-term extraction in fear of higher future taxation. In this note we show that this effect does only occur for the specific set of carbon taxes that increase at a rate higher than the effective discount rate of the resource owners. We calculate a critical initial value for the carbon tax that leads to a decreased cumulative consumption over the entire (infinite) time horizon. Applying our formal findings to carbon taxes for several mitigation targets, we conclude that there is a low risk of a green paradox in case the regulator implements and commits to a permanently mal-adjusted tax. This remaining risk can be avoided by emissions trading scheme as suggested by Sinn--as long as the emission caps are set appropriately and the intertemporal permit market works correctly.
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- Hans-Werner Sinn, 2008.
"Public policies against global warming: a supply side approach,"
International Tax and Public Finance,
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- Sinn, Hans-Werner, 2008. "Public policies against global warming: A supply side approach," Munich Reprints in Economics 19638, University of Munich, Department of Economics.
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13/2010, Oslo University, Department of Economics.
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Tinbergen Institute Discussion Papers
10-020/3, Tinbergen Institute, revised 27 Aug 2012.
- Frederick Van der Ploeg & Cees A. Withagen, 2010. "Is There Really a Green Paradox?," CESifo Working Paper Series 2963, CESifo Group Munich.
- Rick van der Ploeg & Cees Withagen, 2010. "Is There Really a Green Paradox?," OxCarre Working Papers 035, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
- Nicholas Stern, 2008. "The Economics of Climate Change," American Economic Review, American Economic Association, vol. 98(2), pages 1-37, May.
- Reyer Gerlagh, 2010.
"Too Much Oil,"
2010.14, Fondazione Eni Enrico Mattei.
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- Matthias Kalkuhl & Ottmar Edenhofer, 2010. "Prices vs. Quantities and the Intertemporal Dynamics of the Climate Rent," CESifo Working Paper Series 3044, CESifo Group Munich.
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