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Simultaneous Supplies of Dirty Energy and Capacity Constrained Clean Energy: Is there a Green Paradox?

Listed author(s):
  • Marc Gronwald
  • Ngo Van Long
  • Luise Roepke

We analyze the effects of two popular second-best clean energy policies, using an extended resource extraction framework. This model features, first, heterogeneous energy sources and, second, a capacity-constrained backstop technology. This setup allows for capturing the following two empirical observations. First, different types of energy sources are used simultaneously despite different production costs. Second, experiences from various European countries show that a further expansion of the use of climate friendly technologies faces substantial technological as well as political constraints. We use this framework to analyze if under two policy scenarios a so-called “Green Paradox” occurs. A subsidy for the clean energy as well as an expansion of the capacity of the clean energy are considered. The analysis shows that while both policy measures lead to a weak Green Paradox, a strong Green Paradox is only found for the capacity expansion scenario. In addition, the subsidy is found to be welfare enhancing while the capacity increase is welfare enhancing only if the cost of adding the capacity is sufficiently small. Nous analysons les effets de deux politiques encourageant l’énergie verte, en utilisant un cadre élargi d’extraction des ressources. Ce modèle comporte, d’une part, des sources d’énergie hétérogènes et, d’autre part, une technologie verte dont l’exploitation est sous une contrainte de capacité. Cette configuration permet de capturer les deux observations empiriques suivantes. Tout d’abord, plusieurs sources d’énergie sont utilisées simultanément malgré l’écart de coûts de production. Deuxièmement, les expériences de divers pays européens montrent qu’une expansion accrue de l’utilisation de technologies respectueuses du climat fait face à des contraintes technologiques et politiques importantes. Nous utilisons ce cadre pour analyser si sous deux scénarios de politique un soi-disant « Paradoxe Vert » se produit. Une subvention sur le coût de l’énergie verte ainsi qu’une expansion de la capacité de l’énergie verte sont prises en considération. L’analyse montre que tandis que les deux mesures politiques conduisent à un Paradoxe Vert faible, un Paradoxe Vert fort est seulement trouvé pour le scénario d’expansion de la capacité. En outre, la subvention améliore le bien-être, alors que l’accroissement de la capacité ne favorise le bien-être que si le coût d’ajout de la capacité est suffisamment faible.

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File URL: http://www.cirano.qc.ca/files/publications/2016s-61.pdf
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Paper provided by CIRANO in its series CIRANO Working Papers with number 2016s-61.

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Length: 41 pages
Date of creation: 22 Dec 2016
Handle: RePEc:cir:cirwor:2016s-61
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  1. 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.
  2. 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.
  3. 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.
  4. Amigues, Jean-Pierre & Favard, Pascal & Gaudet, Gerard & Moreaux, Michel, 1998. "On the Optimal Order of Natural Resource Use When the Capacity of the Inexhaustible Substitute Is Limited," Journal of Economic Theory, Elsevier, vol. 80(1), pages 153-170, May.
  5. Holland, Stephen P., 2003. "Extraction capacity and the optimal order of extraction," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 569-588, May.
  6. Jon Strand, 2007. "Technology Treaties and Fossil-Fuels Extraction," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 129-142.
  7. Long, Ngo Van & Sinn, Hans-Werner, 1985. "Surprise Price Shifts, Tax Changes and the Supply Behaviour of Resource Extracting Firms," Australian Economic Papers, Wiley Blackwell, vol. 24(45), pages 278-289, December.
  8. Reyer Gerlagh, 2011. "Too Much Oil," CESifo Economic Studies, CESifo, vol. 57(1), pages 79-102, March.
  9. 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.
  10. van der Ploeg, Frederick & Withagen, Cees, 2012. "Too much coal, too little oil," Journal of Public Economics, Elsevier, vol. 96(1), pages 62-77.
  11. Hans-Werner Sinn, 2008. "Public policies against global warming: a supply side approach," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 15(4), pages 360-394, August.
  12. Kemp, Murray C & Long, Ngo Van, 1980. "On Two Folk Theorems Concerning the Extraction of Exhaustible Resources," Econometrica, Econometric Society, vol. 48(3), pages 663-673, April.
  13. Michielsen, Thomas O., 2014. "Brown backstops versus the green paradox," Journal of Environmental Economics and Management, Elsevier, vol. 68(1), pages 87-110.
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