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Title:Should we be worried about the green paradox? Announcement effects of the acid rain program PDF Logo
Authors:Di Maria, Corrado
Lange, Ian A.
van der Werf, Edwin
Issue Date:2012
Series/Report no.:CESifo working paper: Energy and Climate Economics 3829
Abstract:This paper presents the first empirical test of the green paradox hypothesis, according to which well-intended but imperfectly implemented policies may lead to detrimental environmental 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, some indication that the amount of coal used might have increased, and no evidence that the announcement of the Acid Rain Program lead the use of higher sulfur coal. Overall, our evidence suggests that while the mechanism indicated by the theory might be at work, market conditions and concurrent regulation prevented a green paradox from arising. These results have implications for the design of climate policies.
Subjects:Green Paradox
implementation lags
announcement effects
climate policy
acid rain policy
JEL:Q31
Q38
Q53
Q54
Q58
Document Type:Working Paper
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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