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Announcing climate policy: Can a green paradox arise without scarcity?

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  • Smulders, Sjak
  • Tsur, Yacov
  • Zemel, Amos

Abstract

Unintended consequences of a pre-announced climate policy are studied within a framework that allows for competition between polluting and clean energy sources. We show that early announcement of a carbon tax gives rise to a “green-paradox,” in that it increases emissions in the interim period (between announcement and actual implementation), irrespective of the scarcity of fossil fuels. The paradoxical outcome is driven by consumption-saving tradeoffs facing households who seek to smooth consumption over time and holds both when the announced implementation date is taken as a credible threat and when households are skeptical about the (political) will or capability of the government to implement the policy as announced.

Suggested Citation

  • Smulders, Sjak & Tsur, Yacov & Zemel, Amos, 2012. "Announcing climate policy: Can a green paradox arise without scarcity?," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 364-376.
  • Handle: RePEc:eee:jeeman:v:64:y:2012:i:3:p:364-376
    DOI: 10.1016/j.jeem.2012.02.007
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    References listed on IDEAS

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    1. Michael Hoel, 2011. "The Supply Side of CO 2 with Country Heterogeneity," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(4), pages 846-865, December.
    2. Thomas Eichner & Rüdiger Pethig, 2011. "Carbon Leakage, The Green Paradox, And Perfect Future Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 52(3), pages 767-805, August.
    3. Corrado Di Maria & Sjak Smulders & Edwin van der Werf, 2008. "Absolute Abundance and Relative Scarcity: Announced Policy, Resource Extraction, and Carbon Emissions," Working Papers 2008.92, Fondazione Eni Enrico Mattei.
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    5. 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.
    6. Smulders, Sjak & Tsur, Yacov & Zemel, Amos, 2010. "Uncertain Climate Policy and the Green Paradox," Discussion Papers 93129, Hebrew University of Jerusalem, Department of Agricultural Economics and Management.
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    Cited by:

    1. Açıkgöz, Ömer T. & Benchekroun, Hassan, 2017. "Anticipated international environmental agreements," European Economic Review, Elsevier, vol. 92(C), pages 306-336.
    2. Nachtigall, Daniel & Rübbelke, Dirk, 2016. "The green paradox and learning-by-doing in the renewable energy sector," Resource and Energy Economics, Elsevier, vol. 43(C), pages 74-92.
    3. Eichner, Thomas & Pethig, Ru¨diger, 2013. "Flattening the carbon extraction path in unilateral cost-effective action," Journal of Environmental Economics and Management, Elsevier, vol. 66(2), pages 185-201.
    4. Frederick van der Ploeg & Cees Withagen, 2015. "Global Warming and the Green Paradox: A Review of Adverse Effects of Climate Policies," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 9(2), pages 285-303.
    5. Hart, Rob & Spiro, Daniel, 2011. "The elephant in Hotelling's room," Energy Policy, Elsevier, vol. 39(12), pages 7834-7838.
    6. Zhang, Kun & Zhang, Zong-Yong & Liang, Qiao-Mei, 2017. "An empirical analysis of the green paradox in China: From the perspective of fiscal decentralization," Energy Policy, Elsevier, vol. 103(C), pages 203-211.
    7. Bahel, Eric & Marrouch, Walid & Gaudet, Gérard, 2013. "The economics of oil, biofuel and food commodities," Resource and Energy Economics, Elsevier, vol. 35(4), pages 599-617.
    8. Hans Gersbach & Marie-Catherine Riekhof, 2017. "Technology Treaties and Climate Change," CER-ETH Economics working paper series 17/268, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    9. Di Maria, Corrado & Lange, Ian & van der Werf, Edwin, 2014. "Should we be worried about the green paradox? Announcement effects of the Acid Rain Program," European Economic Review, Elsevier, vol. 69(C), pages 143-162.
    10. 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.
    11. Wirl, Franz, 2014. "Taxes versus permits as incentive for the intertemporal supply of a clean technology by a monopoly," Resource and Energy Economics, Elsevier, vol. 36(1), pages 248-269.
    12. L. Lambertini, 2014. "On the Interplay between Resource Extraction and Polluting Emissions in Oligopoly," Working Papers wp976, Dipartimento Scienze Economiche, Universita' di Bologna.
    13. Zhang, Kun & Wang, Qian & Liang, Qiao-Mei & Chen, Hao, 2016. "A bibliometric analysis of research on carbon tax from 1989 to 2014," Renewable and Sustainable Energy Reviews, Elsevier, vol. 58(C), pages 297-310.
    14. Jean-Pierre Amigues & Michel Moreaux, 2016. "From Primary Resources to Useful Energy: The Pollution Ceiling Efficiency Paradox," Working Papers 2016.10, FAERE - French Association of Environmental and Resource Economists.
    15. Smulders, Sjak & Withagen, Cees, 2012. "Green growth -- lessons from growth theory," Policy Research Working Paper Series 6230, The World Bank.
    16. Jus Darko & Meier Volker, 2015. "Announcing is Bad, Delaying is Worse: Another Pitfall in Well-intended Climate Policy," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 235(3), pages 286-297, June.
    17. Julia Blasch & Nina Boogen & Nilkanth Kumar & Massimo Filippini, 2017. "The role of energy and investment literacy for residential electricity demand and end-use efficiency," CER-ETH Economics working paper series 17/269, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    18. Partha Sen, 2013. "Unilateral Emission Cuts And Carbon Leakages In A North-South Trade Model," Working papers 232, Centre for Development Economics, Delhi School of Economics.
    19. Malik Curuk & Suphi Sen, 2015. "Oil Trade and Climate Policy," CESifo Working Paper Series 5285, CESifo Group Munich.

    More about this item

    Keywords

    Climate policy; Carbon tax; Green paradox;

    JEL classification:

    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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