Is There a Green Paradox?
31 Pages Posted: 21 Sep 2010
Date Written: September 20, 2010
A sufficiently rapidly rising carbon tax may increase near-term emissions compared with the case of no carbon tax. Even so, such a carbon tax path may reduce total costs related to climate change, since the tax may reduce total carbon extraction. A government cannot commit to a specific carbon tax rate in the distant future. For reasonable assumptions about expectation formation, a higher present carbon tax will reduce near-term carbon emissions. Moreover, whatever the expectations about future tax rates are, near-term emissions will decline for a sufficiently high carbon tax. However, if the near-term tax rate for some reason is set below its optimal level, increased concern for the climate may change taxes in a manner that increases near-term emissions.
Keywords: climate change, exhaustible resources, green paradox, carbon tax
JEL Classification: Q31, Q38, Q41, Q48, Q54, Q58
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