Does the Adverse Announcement Effect of Climate Policy Matter? - A Dynamic General Equilibrium Analysis

Johannes Bröcker () and Marie–Catherine Riekhof ()
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Johannes Bröcker: Department of Economics, University of Southern Denmark
Marie–Catherine Riekhof: ETH Zurich, Switzerland

No 16/254, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: We consider a carbon emissions tax announced today, but implemented after a known time-lag. Before implementation, the announcement induces higher emissions than without intervention. In welfare terms, this adverse announcement effect could more than outweigh the gain after tax implementation. We quantify a ‘critical lag’ such that a shorter (longer) implementation lag is a welfare gain (loss) over nointervention. We identify resource scarcity as the main driver for a short critical lag. The model is a global Ramsey Model extended by an exhaustible carbon resource and linked to a climate model.

Keywords: Climate Policy; Announcement Effect; Dynamic General Equilibrium; Non-renewable Resource; Backstop; Green Paradox; Welfare Evaluation (search for similar items in EconPapers)
JEL-codes: E21 E32 F44 G21 G28 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2016-07
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