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Unilateral climate policies and green paradoxes: Extraction costs matter

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  • Gilbert Kollenbach

Abstract

Under which conditions unilateral tightening of climate policy causes a weak or strong green paradox or even decreases social welfare has recently been studied by Hoel (2011). Hoel assumes that the costs of extracting fossil fuel are linear in output. We extend his model by allowing for progressively increasing and stock dependent extraction costs. Increasing unit costs imply the simultaneous utilization of fossil fuel and a clean backstop. This has a significant effect on the results, as the utilization of backstop by the country which tightens its climate policy always prevents a weak green paradox. As a consequence, the effect of a tighter climate policy on social welfare can be reversed. Due to the stock dependence of extraction costs the amount of fossil fuel left in situ may be increased by a tighter climate policy. This implies that social welfare may increase, even if a weak green paradox occurs.

Suggested Citation

  • Gilbert Kollenbach, 2014. "Unilateral climate policies and green paradoxes: Extraction costs matter," Volkswirtschaftliche Diskussionsbeiträge 164-14, Universität Siegen, Fakultät Wirtschaftswissenschaften, Wirtschaftsinformatik und Wirtschaftsrecht.
    • Handle: RePEc:sie:siegen:164-14
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    File URL: http://www.wiwi.uni-siegen.de/vwl/repec/sie/papers/164-14.pdf
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    More about this item

    Keywords

    Climate change; green paradox; exhaustible resources; renewable energy;
    All these keywords.

    JEL classification:

    • Q41 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Demand and Supply; Prices
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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