Announcing Climate Policy: Can a Green Paradox Arise Without Scarcity?
Tilburg University - Center and Faculty of Economics and Business Administration; University of Calgary - Economics
Hebrew University of Jerusalem - Department of Agricultural Economics and Management
affiliation not provided to SSRN
December 30, 2010
CESifo Working Paper Series No. 3307
Unintended consequences of a pre-announced climate policy have been studied in a variety of situations. We show that early announcement of a carbon tax gives rise to a “Green-Paradox,” in that it increases polluting emissions in the interim period (between announcement and actual implementation), irrespective of the scarcity of fossil fuels. The phenomenon holds both when the announced implementation date is taken as a credible threat and when households are skeptical about the (political) will or capability of the government to implement the policy as announced. The paradoxical outcome is driven by consumption-saving tradeoffs facing households who seek to smooth consumption over time.
Number of Pages in PDF File: 31
Keywords: climate policy, carbon tax, green paradox, uncertainty
JEL Classification: Q43working papers series
Date posted: January 20, 2011
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