Going Full Circle: Demandside Constraints to the Green Paradox
Going Full Circle: Demandside Constraints to the Green Paradox
This chapter deals with the effects of announcements of green policies that are delayed later on. Firstly, it shows that announcing a unit tax to start at some point in future that grows at the interest rate increases cumulative extraction until any given point in time compared to a zero tax policy. Secondly, an unexpected delay of the introduction of this tax at the originally announced starting date is discussed. While the Green Paradox literature usually states that lowering taxes implies less cumulative emissions, this is not true for postponing their introduction. Reoptimizing resource owners facing a period with unexpectedly low taxes speed up extraction during this period and correspondingly reduce their extraction later on. Consequently, cumulative extraction is higher at any given point in time. Moreover, cumulative extraction under the announcement-cum-delay policy is also higher than if the ultimately realized policy is announced already at the outset.
Keywords: Green Paradox, tax announcement, tax delay, green policy, resource owner, extraction
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