Environmental and Resource Economics

, Volume 63, Issue 2, pp 471–504 | Cite as

Unilateral Climate Policies: Incentives and Effects



We analyze the effect of climate policies using a two-region partial equilibrium model of resource extraction. The regions are heterogeneous in various aspects, such as in their climate policies and resource extraction costs. We obtain analytical and numerical conditions for a Green Paradox to occur as a consequence of a unilateral increase in carbon taxation and backstop subsidy. In order to assess the welfare and climate consequences of unilateral policy changes, we calibrate the model to real world parameter values. We find that forming a ‘climate coalition’ and introducing carbon taxation even in the absence of real climate concerns is the best course of action for the largest fossil fuel-using regions.


Resource extraction Renewable resources Green Paradox Climate policies 

JEL Classification

Q30 Q31 Q37 Q38 Q50 Q54 Q58 



We gratefully acknowledge financial support from FP7-IDEAS-ERC Grant No. 269788.


  1. Archer D (2005) Fate of fossil fuel \(\text{ CO }_2\) in geologic time. J Geophys Res 110(C9):1–6Google Scholar
  2. BP (2013) World Energy Outlook 2030—Booklet. http://www.worldenergyoutlook.org/media/weowebsite/2008-1994/weo2008.pdf
  3. EIA (2013) Levelized cost of new generation resources in the Annual Energy Outlook 2013. http://www.eia.gov/forecasts/aeo/er/pdf/electricity_generation.pdf
  4. Eichner T, Pethig R (2013) Flattening the carbon extraction path in unilateral cost-effective action. J Environ Econ Manag 66(2):185–201CrossRefGoogle Scholar
  5. Fischer C, Salant SW (2013) Limits to limiting greenhouse gases: effects of intertemporal leakage, spatial leakage, and negative leakage. Discussion paperGoogle Scholar
  6. Gerlagh R (2011) Too much oil. CESifo Econ Stud 57(1):79–102CrossRefGoogle Scholar
  7. Hoel M (2011) The supply side of CO\(_2\) with Country Heterogeneity*. Scand J Econ 113(4):846–865CrossRefGoogle Scholar
  8. Karp L, Siddiqui S, Strand J (2013) Dynamic climate policy with both strategic and non-strategic agents: taxes versus quantities. Policy Research Working Paper Series 6679, The World BankGoogle Scholar
  9. Nordhaus W (2008) A question of balance: weighing the options on global warming policies. Yale University Press, New HavenGoogle Scholar
  10. Oilprice.com (2012) Oil Production in the 21st Century and Peak Oil. http://oilprice.com/Energy/Crude-Oil/Oil-Production-in-the-21st-Century-and-Peak-Oil.html
  11. Rauscher M (1994) On ecological dumping. Oxf Econ Pap 46:822–840Google Scholar
  12. Rezai A, van der Ploeg F, Withagen C (2012) The optimal carbon tax and economic growth: additive versus multiplicative damages. OxCarre Working Papers 093, Oxford Centre for the analysis of resource rich economies, University of OxfordGoogle Scholar
  13. Sinn H-W (2008) Public policies against global warming: a supply side approach. Int Tax Public Finance 15(4):360–394CrossRefGoogle Scholar
  14. Strand J (2013) Strategic climate policy with offsets and incomplete abatement: carbon taxes versus cap-and-trade. J Environ Econ Manag 66(2):202–218CrossRefGoogle Scholar
  15. Ulph A (1997) International trade and the environment: a survey of recent economic analysis. In: Folmer H, Tietenberg T (eds) The international yearbook of environmental and resource economics 1997/1998r. Edward Elgar, Gloucester, pp 205–244Google Scholar
  16. van der Ploeg F (2013) Cumulative carbon emissions and the green paradox. OxCarre Working Papers 110, Oxford Centre for the Analysis of Resource Rich Economies, University of OxfordGoogle Scholar
  17. van der Ploeg F, Withagen C (2013) Global Warming and the Green Paradox. OxCarre Working Papers 116, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford. Review of Environmental Economics and Policy (forthcoming)Google Scholar
  18. van der Ploeg R, Rezai A (2013) Abandoning fossil fuel: how fast and how much? OxCarre Research Paper 12, Oxford Centre for the Analysis of Resource Rich Economies, University of OxfordGoogle Scholar
  19. van der Werf E, Di Maria C (2012) Imperfect environmental policy and polluting emissions: the green paradox and beyond. Int Rev Environ Resour Econ 6:153–194CrossRefGoogle Scholar
  20. Wirl F (2012) Global warming: prices versus quantities from a strategic point of view. J Environ Econ Manag 64(2):217–229CrossRefGoogle Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2014

Authors and Affiliations

  1. 1.Department of Spatial EconomicsVU AmsterdamAmsterdamThe Netherlands

Personalised recommendations