Announcing climate policy: Can a green paradox arise without scarcity? |
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Institution: | 1. School of Economics and Management, China University of Mining and Technology, Xuzhou 221116, China;2. Center for Environmental Management and Economics Policy Research, China University of Mining and Technology, Xuzhou 221116, China |
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Abstract: | Unintended consequences of a pre-announced climate policy are studied within a framework that allows for competition between polluting and clean energy sources. We show that early announcement of a carbon tax gives rise to a “green-paradox,” in that it increases emissions in the interim period (between announcement and actual implementation), irrespective of the scarcity of fossil fuels. The paradoxical outcome is driven by consumption-saving tradeoffs facing households who seek to smooth consumption over time and 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. |
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