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Announcing climate policy: Can a green paradox arise without scarcity?

2012; Elsevier BV; Volume: 64; Issue: 3 Linguagem: Inglês

10.1016/j.jeem.2012.02.007

1096-0449

Sjak Smulders, Yacov Tsur, Amos Zemel,

Energy, Environment, and Transportation Policies

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.