Announcing Climate Policy: Can a Green Paradox Arise Without Scarcity?

31 Pages Posted: 20 Jan 2011

See all articles by Sjak Smulders

Sjak Smulders

Tilburg University - Tilburg University School of Economics and Management; University of Calgary - Department of Economics

Yacov Tsur

Hebrew University of Jerusalem - Department of Agricultural Economics and Management

Amos Zemel

Ben-Gurion University of the Negev

Date Written: December 30, 2010

Abstract

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.

Keywords: climate policy, carbon tax, green paradox, uncertainty

JEL Classification: Q43

Suggested Citation

Smulders, Jacobus (Sjak) A. and Tsur, Yacov and Zemel, Amos, Announcing Climate Policy: Can a Green Paradox Arise Without Scarcity? (December 30, 2010). CESifo Working Paper Series No. 3307. Available at SSRN: https://ssrn.com/abstract=1742789

Jacobus (Sjak) A. Smulders

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2920 (Phone)
+31 13 466 3042 (Fax)

HOME PAGE: http://www.uvt.nl/webwijs/english/show.html?anr=801585&lang=en

University of Calgary - Department of Economics ( email )

2500 University Drive, NW
Calgary, Alberta T2N 1N4
Canada

Yacov Tsur

Hebrew University of Jerusalem - Department of Agricultural Economics and Management ( email )

P.O. Box 12
Rehovot, 76100
Israel

Amos Zemel (Contact Author)

Ben-Gurion University of the Negev ( email )

Be'er Sheva
8410501
Israel

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