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Global Warming and the Green Paradox: A review of adverse effects of climate policies

  • Frederick van der Ploeg
  • Cees Withagen

This article examines the possible adverse effects of well-intended climate policies. A weak Green Paradox arises if the announcement of a future carbon tax or a sufficiently fast rising carbon tax encourages fossil fuel owners to extract reserves more aggressively, thus exacerbating global warming. We argue that such policies may also encourage more fossil fuel to be locked in the crust of the earth, which can offset the adverse effects of the weak Green Paradox. We show that a subsidy on clean renewables has similar weak Green Paradox effects. Green welfare (the complement of environmental damages) drops (i.e., the strong Green Paradox) if the beneficial climate effects of locking up more fossil fuel do not outweigh the short-run weak Green Paradox effects. Neither the weak nor the strong Green Paradox occurs for the first-best Pigouvian carbon tax. We also pay attention to dirty backstops, spatial carbon leakage and green innovation.

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Paper provided by Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford in its series OxCarre Working Papers with number 116.

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Date of creation: 2013
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Handle: RePEc:oxf:oxcrwp:116
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  1. Sinn, Hans-Werner, 1981. "The theory of exhaustible resources," Munich Reprints in Economics 19910, University of Munich, Department of Economics.
  2. Hoel, Michael, 1983. "Monopoly resource extractions under the presence of predetermined substitute production," Journal of Economic Theory, Elsevier, vol. 30(1), pages 201-212, June.
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  9. Liski, Matti & Tahvonen, Olli, 2004. "Can carbon tax eat OPEC's rents?," Journal of Environmental Economics and Management, Elsevier, vol. 47(1), pages 1-12, January.
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  12. Reyer Gerlagh, 2010. "Too Much Oil," Working Papers 2010.14, Fondazione Eni Enrico Mattei.
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  18. Niko Jaakkola, 2013. "Putting OPEC Out of Business," OxCarre Working Papers 099, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
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  25. repec:ner:tilbur:urn:nbn:nl:ui:12-3107039 is not listed on IDEAS
  26. Di Maria, Corrado & Smulders, Sjak & van der Werf, Edwin, 2012. "Absolute abundance and relative scarcity: Environmental policy with implementation lags," Ecological Economics, Elsevier, vol. 74(C), pages 104-119.
  27. Corrado Di Maria & Ian A. Lange & Edwin van der Werf, 2013. "Going Full Circle: Demand-Side Constraints to the Green Paradox," CESifo Working Paper Series 4152, CESifo Group Munich.
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