Question

What are your thoughts on the Green Paradox?

Answer 1

After 2008, the "Green Paradox" has been debated in the field of environmental economics: the trend of growing pollution, at least temporarily, in response to climate change policies directed at fossil fuel use. In contrast to other assets, owners of non-renewable resources can harvest them when it is feasible to do so. Similarly when other investments are better offers, they will leave their money in the field. That means the rate of extraction and the resource price are determined by the prevailing rate of interest.

Changes in climate policy which result a little bit. Many measures operate by rising the price of fossil fuels in order to represent the cost of climate change that society bears. Consumers would expect less fossil fuel when a strategy kicks in. This causes the price suppliers get to fall, and suppliers make less of a profit than they would otherwise. If suppliers expect a policy to start sometime in the future, they can transfer some of their extraction to making up for the drop in income they anticipate before the policy enters into force. The extraction plan is simply pushed up in time.

If a climate policy is implemented in advance [equivalent to a tax that increases with the interest rate], fossil fuel suppliers will move their production forward in time. This would also happen if a climate shock program is introduced, which is similar to a tax that increases faster than the interest rate. Even a surprise climate policy that rises at interest rates will lead to more emissions faster than suppliers would be surprised at all, considering the significance of climate change in political discourse.

It may feel as if all the talk about a Green Paradox amounts to nothing more than gas. One essential aspect of the theory is that the supply side of the fossil fuel markets is emphasized. Most carbon policies concentrate on the demand side — taxing, putting a cap on, or otherwise restricting emissions from fossil fuel use. Supply-side strategies are geared to ensuring fossil fuels stay on the ground