January 30, 2011

Announcing Climate Policy: Can a Green Paradox Arise without Scarcity?

by Sjak Smulders, Yacov Tsur and Amos Zemel

- Unintended consequences of a pre-announced climate policy have been studied in a variety of situations. We show that early announcement of a carbon tax gives rise to a "Green-Paradox", in that it increases polluting emissions in the interim period (between announcement and actual implementation), irrespective of the scarcity of fossil fuels. The phenomenon 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.

Smulders, S., Y. Tsur and A. Zemel (2010). "Announcing Climate Policy: Can a Green Paradox Arise without Scarcity?" CESifo Working Paper No. 3307, Dec 2010.