The first-best approach to climate policy would be the immediate and permanent introduction of a global emission trading system for all greenhouse gases in all sectors. Experiences with international negotiations as in Kyoto, Copenhagen or Cancun, for example, have however shown that only second-best policies seem realistically attainable. The Green Paradox is an important argument in the debate about these second-best climate policies. Basically it implies that deviations from the first-best policy will be ineffective - or even counterproductive - to reduce carbon emissions from the energy sector because of the behaviour of fossil fuel owners. A global CO2 tax whose rate increases over time, as it is often discussed in the literature, creates incentives for resource owners to increase emissions (resp. the supply of fossil resources that cause emissions) in the short run. Second-best climate policies have to take account of this effect and should be designed accordingly.
The derivation of the green paradox, at least in its currently discussed form, is based on a number of simplifying assumptions. The costs of fossil fuel extraction and its dynamics, international trade of resources and substitution possibilities, for example, remain largely unconsidered. Improved incorporation of these aspects might alter the quantitative significance of the green paradox.
The main goal of the project is to assess the significance of the Green Paradox in an extended modelling framework and its effects on the benefits and costs of second-best climate policies. The gained insights will prove useful for the developoment and implementation of effective second-best measures on the way to a global climate policy framework. In order to achieve this goal, the project will conduct a comprehensive theoretical analysis which is enhanced by numerical simulations of the policy impacts in the framework of the integrated assessement model REMIND.
The project goes beyond current research not only by integrating so far neglected aspects that can either strengthen or weaken the effects of the Green Paradox but also by overcoming the seperation between theoretical and numerical analyses.
The project aims at providing decision makers with information about the implications and effectiveness of different climate protection strategies. It especially focuses on the evaluation of existing demand side policies and on providing the foundations for the derivation of supply side policiy measures that take the behavior of resource owners as well as the complex international and intertemporal effects of second-best climate policies into consideration.
Intertemporal control theory, simulation, integrated assessment analysis
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