nep-res New Economics Papers
on Resource Economics
Issue of 2013‒08‒10
three papers chosen by
Maximo Rossi
Universidad de la Republica

  1. Global Warming and the Green Paradox By Frederick van der Ploeg; Cees Wutgageb
  2. Environmental Regulation: Supported by Polluting Firms, but Opposed by Green Firms By Felix Munoz-Garcia; Sherzod Akhundjanov
  3. Climate Policy and Catastrophic Change: Be Prepared and Avert Risk By Frederick van der Ploeg; Aart de Zeeuw

  1. By: Frederick van der Ploeg; Cees Wutgageb
    Abstract: Announcing a future carbon tax or a sufficiently fast rising carbon tax encourages fossil fuel owners to extract reserves more aggressively, thus exacerbating global warming. These policies also encourage more fossil fuel to be locked in the crust of the earth which can offset adverse weak Green Paradox effects. A renewables subsidy has similar weak Green Paradox effects. Green welfare drops (strong Green Paradox) if the beneficial effects for the climate of locking up more fossil fuel outweigh the short-run weak Green Paradox effects. Neither the weak nor the strong Green Pradox occurs for the first-best Pigovian carbon tax. Within the context of a green Ramsey growth model the qualitative nature of the different phases of fossil fuel and renewables use depends crucially on the initial stocks of fossil fuel reserves and capital. We examne how climate policies are affected by growth and development, and also when not the renewable but coal is the effective backstop.
    Keywords: fossil fuel, renewables, coal, economic growth, global warming, carbon tax, Green Paradox
    JEL: D81 H20 Q31 Q38
    Date: 2013
  2. By: Felix Munoz-Garcia; Sherzod Akhundjanov (School of Economic Sciences, Washington State University)
    Abstract: This paper investigates the production decisions of polluting and green fi?rms, and how their profi?ts are affected by environmental regulation. We demonstrate that emission fees entail a negative effect on fi?rms? profi?ts, since they increase unit production costs. However, fees can also produce a positive effect for a relatively inefficient ?firm, given that environmental regulation ameliorates its cost disadvantage. If such a disadvantage is sufficiently large, we show that the positive effect dominates, thus leading this ?firm to actually favor the introduction of environmental policy, while relatively efficient fi?rms oppose regulation. Furthermore, we show that such support can not only originate from green firms but, more surprisingly, also from polluting companies.
    Keywords: Cost asymmetries; Cost disadvantage; Emission fees; Green firms
    JEL: L13 D62 H23 Q20
  3. By: Frederick van der Ploeg; Aart de Zeeuw
    Abstract: The essence of climate policy is how to prepare for catastrophic change and how to reduce the risk of such events occurring. We show within the context of the Ramsey growth model that the optimal reaction to a pending climate catastrophe is, on the one hand, to accumulate capital to be better prepared for when the disaster hits the global economy, and, on the other hand, a carbon tax to reduce the risk of the hazard occurring by curbing demand for fossil fuel and carbon emissions and reversing the increase in global warming in the business-as-usual scenario. The optimal carbon tax consists of the conventional Pigouvian present value of marginal damages, the non-marginal expected change in welfare caused by a marginal higher risk of catastrophe resulting from burning an additional unit of fossil fuel, and the expected loss in after-catastrophe welfare. The last two terms offset the precautionary increase in capital. The results are illustrated with an integrated assessment model of the global economy. A linear hazard function calibrated to a 6.8% chance of a 30% drop in global GDP at 2324 GtC implies an eventual precautionary return (if necessary realized by a capital subsidy) of 1.6% and a global carbon tax of 136 US $/tC. A higher elasticity of intertemporal substitution lowers precautionary capital accumulation and thus lessens the need for a high carbon tax, but also implies less intergenerational inequality aversion which pushes up the carbon tax.
    Keywords: non-marginal climate damages, tipping points, risk avoidance, economic growth, social cost of carbon, capital subsidy, adaptation capital, carbon tax, renewables
    JEL: D81 H20 O40 Q31 Q38
    Date: 2013

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