On 1st April 2019 (1-2pm) Dr. Mark Schopf, research assistant at the University of Hagen and University of Siegen, will give a presentation about “Unilaterally optimal climate policy and the green paradox” in Q4.245. Afterwards, Mr. Schopf will be available for questions and discussions. His presentation is part of: https://wiwi.uni-paderborn.de/dep1/me/research/discussing-research/seam/
Consider a Hotelling model with a perfect backstop technology and two groups of countries, a climate coalition and a fringe. The fringe ignores global warming and owns the entire resource stock.
If the coalition takes the fuel price as given, an increase in the marginal climate damage leads to lower fuel imports at any point of time and can lead to more initial resource extraction (green paradox). In particular, if the coalition’s energy demand is inelastic, its initial fuel consumption is not affected, but it switches earlier to the backstop technology. This leads to a lower scarcity rent and, thus, to more (initial) fuel consumption of the fringe. In an empirically calibrated economy, the green paradox can occur if the coalition's price elasticity of energy demand is smaller than 0.026.
By contrast, if the climate coalition accounts for its influence on the fuel price, an increase in the marginal climate damage ceteris paribus leads to lower fuel imports at early points of time, but to higher fuel imports at late points of time. This reduces the impact on the scarcity rent and, thus, on the fringe’s fuel consumption. If the coalition’s energy demand is inelastic, it switches later to the backstop technology, which even increases the scarcity rent and lowers the initial resource extraction (no green paradox).