The Green Paradox and the importance of endogenous resource exploration

Abstract

It has been proposed that climate policies aimed at reducing greenhouse gas emissions from fossil fuel use may actually worsen the problem of global warming. Such a Green Paradox could occur if fossil fuel resource owners exploit their resources more rapidly due to the expectation of stricter climate policies in the future. This article shows that the emergence of the Green Paradox is less plausible if exploration activities are taken into account. An extraction model that incorporates exploration investments finds that an increasing cash flow tax is effective in dealing with climate change depending upon the specific formulation of the tax scheme. For example, the higher the initial tax level, the more effective is the tax scheme in mitigating climate change and hence a Green Paradox can be avoided. A very low growth rate is also beneficial for the climate as it leads to a small temporal redistribution of extraction to earlier periods. A very high growth rate leads to faster extraction; however, it also coincides with a significant decrease in total emissions that is inconsistent with a Green Paradox.

Divestment prevails over the green paradox when anticipating strong future climate policies

“…41 The need to explore and develop in preparation for fossil fuel extraction (#7) also reduce the strength of the GP. 42 Exploration and development activities are not explicitly included in both IAMs, but the associated costs are a component in the marginal extraction costs. 43 REMIND also includes adjustment costs that increase non-linearly for rapid acceleration of extraction (which is similar to an upward sloping supply function for exploration and development).…”

Design of a river chief incentive mechanism based on blockchain: A principal–agent model

“…Therefore, in a transparent river governance system, the continued implementation of high-handed accountability measures by municipal river chiefs would inhibit the frequency of reporting problems by commune river chiefs. Moreover, empirical research has revealed a "green paradox," whereby the stronger the environmental regulation is, the more pollution is discharged (Najm, 2019;Okullo et al, 2021;Osterle, 2016;van der Ploeg, 2013van der Ploeg, , 2018. Therefore, new incentives are needed to optimize RCS so that it can become a long-lasting river governance mechanism.…”

The supply-side climate policy of decreasing fossil fuel tax profiles: can subsidized reserves induce a green paradox?

“…Seminal models incorporate the result of Dasgupta and Heal ( 1979 ) that a downward-sloping profile for an ad valorem tax rate encourages slower extraction for given reserves of an exhaustible resource which is costless to extract. Sinn ( 2008 ) and Osterle ( 2015 ) show that an upward-sloping tax profile encourages accelerated extraction and global warming unless costs increase with the cumulative stock extracted faster than the tax rate rises. Sinclair ( 1994 ) models global warming as a stock externality where productivity increases with fossil fuel reserves left underground and finds that the socially optimal carbon tax rate has a downward-sloping profile under costless extraction.…”