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An Introduction to the Green Paradox: The Unintended Consequences of Climate Policies

Author

Listed:
  • Svenn Jensens
  • Kristina Mohlin
  • Karen Pittel
  • Thomas Sterner

Abstract

How important is the Green Paradox? We address this question in three ways. First, we present a simple model explaining how announcing a future climate policy may increase carbon emissions today – the Green Paradox effect. This effect is a result of fossil fuel producers increasing their extraction today as a response to a reduction in future resource rents. Second, we examine the theoretical and empirical literature to assess whether green paradoxes are likely to occur, and if they are, whether they are big enough to be of concern for policy makers. We consider several factors that affect the existence of the green paradox, including long-term extraction costs, short-term extraction capacities, the mix of policy instruments, and potential spatial carbon leakage to countries that have no climate policy. We find that these and other factors can sometimes strengthen, but mostly weaken, the case for concern about the green paradox. Third, we identify the lessons the literature offers for policy makers. We argue that in designing climate policy, policy makers need to consider the supply side of the fossil fuel market.

Suggested Citation

  • Svenn Jensens & Kristina Mohlin & Karen Pittel & Thomas Sterner, 2015. "An Introduction to the Green Paradox: The Unintended Consequences of Climate Policies," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 9(2), pages 246-265.
  • Handle: RePEc:oup:renvpo:v:9:y:2015:i:2:p:246-265.
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    File URL: http://hdl.handle.net/10.1093/reep/rev010
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    References listed on IDEAS

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    1. Michael Hoel, 2010. "Climate Change and Carbon Tax Expectations," CESifo Working Paper Series 2966, CESifo Group Munich.
    2. Ngo Van Long, 2015. "The Green Paradox in Open Economies: Lessons from Static and Dynamic Models," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 9(2), pages 266-284.
    3. 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.
    4. 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, March.
    5. 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.
    6. Ulph, Alistair & Ulph, David, 1994. "The Optimal Time Path of a Carbon Tax," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 857-868, Supplemen.
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    Citations

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    Cited by:

    1. Hans-Werner Sinn, 2015. "Introductory Comment–The Green Paradox: A Supply-Side View of the Climate Problem," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 9(2), pages 239-245.
    2. 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.
    3. repec:kap:enreec:v:68:y:2017:i:1:d:10.1007_s10640-017-0151-6 is not listed on IDEAS
    4. Helene Naegele & Aleksandar Zaklan, 2017. "Does the EU ETS Cause Carbon Leakage in European Manufacturing?," Discussion Papers of DIW Berlin 1689, DIW Berlin, German Institute for Economic Research.
    5. Halvor Briseid Storrøsten, 2017. "Regulation in the presence of adjustment costs and resource scarcity. Transition dynamics and intertemporal effects," Discussion Papers 864, Statistics Norway, Research Department.
    6. Cathrine Hagem & Halvor Briseid Storrøsten, 2016. "Supply versus demand-side policies in the presence of carbon leakage and the green paradox," Discussion Papers 836, Statistics Norway, Research Department.
    7. Ngo Van Long, 2015. "The Green Paradox in Open Economies: Lessons from Static and Dynamic Models," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, vol. 9(2), pages 266-284.
    8. Elizabeth Baldwin, Yongyang Cai, Karlygash Kuralbayeva, 2018. "To build or not to build? Capital stocks and climate policy," GRI Working Papers 290, Grantham Research Institute on Climate Change and the Environment.
    9. Stefano Bosi & David Desmarchelier, 2016. "Natural cycles and pollution," Working Papers of BETA 2016-53, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
    10. repec:eee:eecrev:v:99:y:2017:i:c:p:191-215 is not listed on IDEAS
    11. Marc Gronwald & Ngo Long & Luise Roepke, 2017. "Simultaneous Supplies of Dirty Energy and Capacity Constrained Clean Energy: Is There a Green Paradox?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(1), pages 47-64, September.
    12. repec:eee:ecolec:v:150:y:2018:i:c:p:52-61 is not listed on IDEAS
    13. Waldemar Marz & Johannes Pfeiffer, 2015. "Petrodollar Recycling, Oil Monopoly, and Carbon Taxes," ifo Working Paper Series 204, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    14. Orlov, Anton, 2016. "Effects of higher domestic gas prices in Russia on the European gas market: A game theoretical Hotelling model," Applied Energy, Elsevier, vol. 164(C), pages 188-199.
    15. repec:wsi:ccexxx:v:08:y:2017:i:02:n:s2010007817500075 is not listed on IDEAS
    16. Marc GRONWALD & Ngo Van LONG & Luise ROEPKE, 2017. "Three Degrees of Green Paradox: The Weak, The Strong, and the Extreme Green Paradox," Cahiers de recherche 02-2017, Centre interuniversitaire de recherche en économie quantitative, CIREQ.

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