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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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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. Thomas Eichner & Rüdiger Pethig, 2009. "Carbon leakage, the green paradox and perfect future markets," Volkswirtschaftliche Diskussionsbeiträge 136-09, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  2. 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.
  3. Hoel, Michael & Jensen, Svenn, 2010. "Cutting Costs of Catching Carbon - Intertemporal effects under imperfect climate policy," Memorandum 19/2010, Oslo University, Department of Economics.
  4. 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.
  5. Michael Hoel, 2013. "Supply Side Climate Policy and the Green Paradox," CESifo Working Paper Series 4094, CESifo Group Munich.
  6. R. Quentin Grafton & Tom Kompas & Ngo Van Long, 2010. "Biofuels Subsidies and the Green Paradox," CESifo Working Paper Series 2960, CESifo Group Munich.
  7. Thomas Eichner & Rüdiger Pethig, 2011. "Flattening the carbon extraction path in unilateral cost-effective action," Volkswirtschaftliche Diskussionsbeiträge 151-11, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
  8. Michael Hoel, 2011. "The Supply Side of CO2 with Country Heterogeneity," CESifo Working Paper Series 3393, CESifo Group Munich.
  9. Reyer Gerlagh, 2011. "Too Much Oil," CESifo Economic Studies, CESifo, vol. 57(1), pages 79-102, March.
  10. Corrado Maria & Edwin Werf, 2008. "Carbon leakage revisited: unilateral climate policy with directed technical change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 39(2), pages 55-74, February.
  11. 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.
  12. Sinn, Hans-Werner, 2008. "Public policies against global warming: A supply side approach," Munich Reprints in Economics 19638, University of Munich, Department of Economics.
  13. 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.
  14. 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.
  15. 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.
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