Unilateral Policies, Competitiveness and the ‘Green Paradox’ in a Dynamic North–South Model

Partha Sen

Arthaniti: Journal of Economic Theory and Practice, 2018, vol. 17, issue 2, 113-139

Abstract: Abstract The effects of a unilateral cut in emissions (e.g., by Annexure 1 countries in Kyoto) are analysed in a dynamic two-country two-commodity model. If the fossil fuel is priced at marginal cost, then a unilateral cut reduces total emissions (the carbon leakage is less than 100%). But if the fuel is priced above marginal cost, then a ‘green paradox’ appears, that is, the price of the fuel will fall until its use (over time) exhausts the entire stock. Here, a unilateral policy is self-defeating and it is necessary to get binding commitments on fossil fuel use from all the countries. The production and trade implications for the participant and non-participant countries are analysed. JEL: Q4, Q50, Q54, Q56

Keywords: Carbon leakage; green paradox; Hotelling rule; quasi-linear preferences (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:sae:artjou:v:17:y:2018:i:2:p:113-139

DOI: 10.1177/0976747918796878

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