Helpful comments from three anonymous referees and CESifo sponsorship for presenting the article at the CESifo Area Conference on Energy and Climate Economics, October 2009, are gratefully acknowledged. Remaining errors are the authors’ sole responsibility. Please address correspondence to: Thomas Eichner, Department of Economics, University of Hagen, Germany. E-mail: Thomas.email@example.com.
CARBON LEAKAGE, THE GREEN PARADOX, AND PERFECT FUTURE MARKETS*
Article first published online: 29 AUG 2011
© (2011) by the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association
International Economic Review
Volume 52, Issue 3, pages 767–805, August 2011
How to Cite
Eichner, T. and Pethig, R. (2011), CARBON LEAKAGE, THE GREEN PARADOX, AND PERFECT FUTURE MARKETS. International Economic Review, 52: 767–805. doi: 10.1111/j.1468-2354.2011.00649.x
Manuscript received June 2009; revised February 2010.
- Issue published online: 29 AUG 2011
- Article first published online: 29 AUG 2011
Policies of lowering carbon demand may aggravate instead of alleviate climate change (green paradox). In a two-period, three-country general equilibrium model with finite endowment of fossil fuel, one country enforces an emissions cap in the first or second periods. When that cap is tightened, the extent of carbon leakage depends on the interaction of various parameters and elasticities. Conditions for the green paradox are specified. All determinants of carbon leakage resulting from tightening the first-period cap work in the opposite direction when the second-period cap is tightened. Tightening the second-period cap does not necessarily lead to the green paradox.