Should we be worried about the green paradox? Announcement effects of the Acid Rain Program

Corrado Di Maria, Ian Lange and Edwin van der Werf ()

European Economic Review, 2014, vol. 69, issue C, 143-162

Abstract: This paper presents the first empirical test of the green paradox hypothesis, according to which well-intended but imperfectly implemented environmental policies may lead to detrimental outcomes due to supply side responses. We use the introduction of the Acid Rain Program in the U.S. as a case study. The theory predicts that owners of coal deposits, expecting future sales to decline, would supply more of their resource between the announcement of the Acid Rain Program and its implementation; moreover, the incentive to increase supply would be stronger for owners of high-sulfur coal. This would, all else equal, induce an increase in sulfur dioxide emissions. Using data on prices, heat input and sulfur content of coal delivered to U.S. power plants, we find strong evidence of a price decrease and of an increase in the sulfur premium, some indication that the amount of coal used might have increased, and no evidence of fuel-switching towards higher-sulfur coal. Overall, our evidence suggests that while the mechanism indicated by the theory might be at work, market conditions and concurrent regulation largely prevented a green paradox from arising. These results have implications for the design of climate policies.

Keywords: Green paradox; Implementation lags; Announcement effects; Climate policy; Acid rain policy (search for similar items in EconPapers)
JEL-codes: Q31 Q38 Q53 Q54 Q58 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

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Related works:
Working Paper: Should We Be Worried About the Green Paradox? Announcement Effects of the Acid Rain Program (2012)
Working Paper: Should we be Worried about the Green Paradox? Announcement Effects of the Acid Rain Program (2012)
Working Paper: Should We Be Worried About the Green Paradox? Announcement Effects of the Acid Rain Program (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:69:y:2014:i:c:p:143-162

DOI: 10.1016/j.euroecorev.2013.03.010

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