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Unilateral climate policy and the green paradox: Extraction costs matter

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  • Gilbert Kollenbach
Abstract
I analyze the effect of unilateral climate policies in a two‐country model where fossil fuel extraction costs depend on both current extraction and remaining stock and where a constant marginal‐cost clean substitute is available. An intensification of climate policy in the country with an initially stricter policy does not increase early fossil fuel extraction (i.e., there is no “weak green paradox”) or the present value of pollution costs (i.e., there is no “strong green paradox”) if energy demand in that country is initially met with a mix of fossil fuel and a substitute. Whether a stricter climate policy in the country with an initially laxer policy causes a weak green paradox depends on the price elasticity of energy demand and the strength of the flow and stock dependence of extraction costs. If the reduction of total extraction is sufficiently strong, it overcompensates for a weak green paradox with respect to pollution costs. Thus, a weak green paradox does not necessarily imply a strong green paradox, due to stock dependence. Politique climatique unilatérale et « paradoxe vert » : l’incidence des coûts d’extraction. L’article analyse l’effet des politiques climatiques unilatérales dans un modèle à deux pays où les coûts d’extraction de combustibles fossiles dépendent à la fois de l’extraction actuelle et du stock résiduel, et où la disponibilité d’un substitut énergétique propre et constant à coût marginal demeure. Une intensification des politiques climatiques dans le pays, de pair avec une politique initialement plus stricte, n’augmente ni l’extraction précoce des combustibles fossiles (c’est‐à‐dire qu’il n’y a pas de « paradoxe vert faible ») ni la valeur actuelles des coûts de pollution (c’est à dire qu’il n’y a pas de « paradoxe vert accru #x00AB;) pour autant que la demande en énergie dans ce pays est initialement satisfaite par une combinaison d’un combustible fossile et d’un substitut. Qu’une politique climatique plus stricte dans ce pays, doté d’une politique initialement plus laxiste, entrane un paradoxe vert moins prononcé dépend de l’élasticité par rapport au prix de la demande d’énergie, de l’importance du flux et de la dépendance en matière de stock relativement aux coûts d’extraction. Si une réduction de l’extraction totale est suffisamment forte, elle surcompensera un paradoxe vert limité relativement aux coûts de pollution. Ainsi, un faible paradoxe vert n’engendre pas nécessairement un fort paradoxe vert en raison de la dépendance au stock.

Suggested Citation

  • Gilbert Kollenbach, 2019. "Unilateral climate policy and the green paradox: Extraction costs matter," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(3), pages 1036-1083, August.
    • Handle: RePEc:wly:canjec:v:52:y:2019:i:3:p:1036-1083
    DOI: 10.1111/caje.12397
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    2. Kollenbach, Gilbert & Schopf, Mark, 2022. "Unilaterally optimal climate policy and the green paradox," Journal of Environmental Economics and Management, Elsevier, vol. 113(C).

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