Uncertain Climate Policy and the Green Paradox

Unintended consequences of announcing a climate policy well in advance of its implementation have been studied in a variety of situations. We show that a phenomenon akin to the so-called “Green-Paradox” holds also when the policy implementation date is uncertain. Governments are compelled, by international and domestic pressure, to demonstrate an intention to reduce greenhouse gas emissions. Taking actual steps, such as imposing a carbon tax on fossil energy, is a different matter altogether and depends on a host of political considerations. As a result, economic agents often consider the policy implementation date to be uncertain. We show that in the interim period between the policy announcement and its actual implementation the emission of green-house gases increases vis-à-vis business-as-usual.