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Climate Policy and Nonrenewable ResourcesThe Green Paradox and Beyond$
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Karen Pittel, Frederick van der Ploeg, and Cees Withagen

Print publication date: 2014

Print ISBN-13: 9780262027885

Published to MIT Press Scholarship Online: January 2015

DOI: 10.7551/mitpress/9780262027885.001.0001

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Resource Extraction and Backstop Technologies in General Equilibrium

Resource Extraction and Backstop Technologies in General Equilibrium

(p.151) 7 Resource Extraction and Backstop Technologies in General Equilibrium
Climate Policy and Nonrenewable Resources

Ngo Van Long

Frank Stähler

The MIT Press

One might expect that innovation in clean energy must help in thebattle against global warming. Paradoxically, clean energy innovation maymake matters worse. This chapter offers a high-level discussion of this paradox. One must distinguish an ex post innovation green paradox, the perverse impact of discovering a low-cost clean energy technology, from an ex ante innovation paradox, the perverse consequences of the threat of innovation. We must also distinguish the short-run impact of innovation in increasing current emissions from the long run impact on temperature dynamics. The chapter adopts a Hotelling model of fossil fuel extraction, incorporating in the model innovation in clean energy and simple climate dynamics. Optimal carbon taxes eliminate the perverse welfare impact of innovation, ensuring that innovation is always beneficial.

Keywords:   Green paradox, innovation, global warming, carbon taxes, clean energy, Hotelling

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