The "Green Paradox" debunked!

Climate policies at specified locations reduce fossil fuel consumption and market price. Another spot may boost its fossil fuel usage in response to the price drop, offsetting some emission savings as per a plethora of research. The mere prospect of strict climate legislation might encourage fossil fuel producers to expedite extraction, causing intertemporal leakage; also identified as intertemporal leakage. A few of the main analyses are:

First, the strong green dilemma tells us that we must render fossil energy unprofitable at some time. Importantly, to greatly limit the potential of harmful interference with the climate system, we must guarantee that a substantial portion of the existing coal, unconventional gas, and oil reserves remain untapped. Therefore, policy should aim to reduce the total amount of resources extracted. Ultimately, a limit (or cap) on cumulative emissions, often known as a carbon budget, is required.

Second, as with other stocks of environmental products, the rights to this global carbon budget must be distributed across time and place to prevent a "race" to the carbon budget ceiling, which would result in a weak green paradox. The weak green paradox may also challenge an overall carbon target: if less carbon than anticipated may be emitted in the future due to rising emissions now, there may be demand to increase the target. This race may be prevented with either an implicit carbon price or an explicit cap-and-trade system.

Thirdly, a carbon price should be formulated with the green dilemma in mind. To avoid the strong green paradox, the tax must reduce resource rents for unextractable reserves. Such a tax would have to be both sufficiently high and worldwide. To avoid the weak green paradox, a large body of literature advocates avoiding both high future tax announcements and taxes that begin extremely low and climb rapidly.

Fourth, a minor green paradox is also possible with a worldwide cap-and-trade scheme if the policy is disclosed in advance or is expected. However, there is no mild green paradox effect equivalent to that of a rapidly rising carbon price, because even if the yearly quota lowers "rapidly," total emissions in each period are set by the cap. In the face of the green conundrum, this somewhat supports quantity restrictions. Neither a worldwide tax nor a global cap-and-trade system is politically possible at the present moment.

Fifth, apropos demonstrated that only if renewable energy is expensive can support for it generate a substantial green paradox. In recent decades, renewable energy costs have decreased significantly, lessening the likelihood of a severe green conundrum. Support for renewables might potentially be reinforced by taxes or quotas, which would increase their cost-competitiveness and bring them to scale, so accelerating their learning curve.

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