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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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Does a Future Rise in Carbon Taxes Harm the Climate?

Does a Future Rise in Carbon Taxes Harm the Climate?

(p.173) 8 Does a Future Rise in Carbon Taxes Harm the Climate?
Climate Policy and Nonrenewable Resources

Florian Habermacher

Gebhard Kirchgässner

The MIT Press

Any path of positive, global climate taxes will, under realistic assumptions, reduce cumulative long-run emissions, that is, there is no very strong Green Paradox. A tax may, however, increase short-run emissions. The quantitative question whether initial increases or long-run reductions dominate the tax induced change of the relevant net present value of damages, is addressed in two ways. First, it is shown analytically that if a carbon tax is not seen as the only potential climate preservation measure – as independent additional political or technological developments in the future may play a role as well –, a strong Green Paradox may be much less likely than if the tax is assessed in isolation of other developments. Second, dynamic numerical simulations show that the structure of the extraction costs for the existing fossil fuel reserves makes the strong Green Paradox unlikely, even without future alternative measures and with high emission discount rates.

Keywords:   climate policy, carbon tax, Green Paradox, exhaustible resources, extraction cost curve, future measure, numerical analysis

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