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Unilateral Climate Policy: Harmful or even Disastrous?

  • Hendrik Ritter

    ()

    (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)

  • Mark Schopf

    ()

    (Faculty of Business Administration and Economics, University of Paderborn)

This paper deals with possible foreign reactions to unilateral carbon demand reducing policies. It differentiates between demand side and supply side reactions as well as between intra- and intertemporal shifts in greenhouse gas emissions. In our model, we integrate a stock-dependent marginal physical cost of extracting fossil fuels into Eichner & Pethig's (2011) general equilibrium carbon leakage model. The results are as follows: Under similar but somewhat tighter conditions than those derived by Eichner & Pethig (2011), a weak green paradox arises. Furthermore, a strong green paradox can arise in our model under supplementary constraints. That means a "green" policy measure might not only lead to a harmful acceleration of fossil fuel extraction but to an increase in the cumulative climate damages at the same time. In some of these cases there is even a cumulative extraction expansion, which we consider disastrous.

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File URL: http://www.fww.ovgu.de/fww_media/femm/femm_2013/2013_10.pdf
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Paper provided by Otto-von-Guericke University Magdeburg, Faculty of Economics and Management in its series FEMM Working Papers with number 130010.

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Length: 30 pages
Date of creation: Jun 2013
Date of revision:
Handle: RePEc:mag:wpaper:130010
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  1. Hoel, Michael, 2011. "The supply side of CO2 with country heterogeneity," Memorandum 08/2011, Oslo University, Department of Economics.
  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, 08.
  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. Di Maria, C. & van der Werf, E.H., 2005. "Carbon Leakage Revisited : Unilateral Climate Policy with Directed Technical Change," Discussion Paper 2005-68, Tilburg University, Center for Economic Research.
  5. Quentin Grafton & Tom Kompas & Ngo Van Long, 2012. "Substitution between bio-fuels and fossil fuels: is there a Green Paradox?," CIRANO Working Papers 2012s-10, CIRANO.
  6. 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.
  7. 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.
  8. Hans-Werner Sinn, 2008. "Public policies against global warming: a supply side approach," International Tax and Public Finance, Springer, vol. 15(4), pages 360-394, August.
  9. Hoel, Michael, 2013. "Supply Side Climate Policy and the Green Paradox," Memorandum 03/2013, Oslo University, Department of Economics.
  10. B�rd Harstad, 2012. "Buy Coal! A Case for Supply-Side Environmental Policy," Journal of Political Economy, University of Chicago Press, vol. 120(1), pages 77 - 115.
  11. Hoel, Michael & Jensen, Svenn, 2010. "Cutting Costs of Catching Carbon - Intertemporal effects under imperfect climate policy," Memorandum 19/2010, Oslo University, Department of Economics.
  12. Frederick van der Ploeg & Cees Withagen, 2010. "Is there really a Green Paradox?," Tinbergen Institute Discussion Papers 10-020/3, Tinbergen Institute, revised 27 Aug 2012.
  13. Reyer Gerlagh, 2011. "Too Much Oil," CESifo Economic Studies, CESifo, vol. 57(1), pages 79-102, March.
  14. R. Quentin Grafton & Tom Kompas & Ngo Van Long, 2010. "Biofuels Subsidies and the Green Paradox," CESifo Working Paper Series 2960, CESifo Group Munich.
  15. Ulph, Alistair & Ulph, David, 1994. "The Optimal Time Path of a Carbon Tax," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 857-68, Supplemen.
  16. 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.
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