Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/43557 
Authors: 
Year of Publication: 
2010
Series/Report no.: 
Nota di Lavoro No. 2010,14
Publisher: 
Fondazione Eni Enrico Mattei (FEEM), Milano
Abstract: 
Fear for oil exhaustion and its consequences on economic growth has been a driver of a rich literature on exhaustible resources from the 1970s onwards. But our view on oil has remarkably changed and we now worry how we should constrain climate change damages associated with oil and other fossil fuel use. In this climate change debate, economists have pointed to a green paradox: when policy makers stimulate the development of non-carbon energy sources to (partly)replace fossil fuels in the future, oil markets may anticipate a future reduction in demand and increase current supply. The availability of 'green' technologies may increase damages. The insight comes from the basic exhaustible resource model. We reproduce the green paradox and to facilitate discussion differentiate between a weak and a strong version, related to short-term and long-term effects, respectively. Then we analyze the green paradox in 2 standard modifications of the exhaustible resource model. We find that increasing fossil fuel extraction costs counteracts the strong green paradox, while with imperfect energy substitutes both the weak and strong green paradox may vanish.
Subjects: 
Green Paradox
Climate Change
Exhaustible Resources
Fossil Fuels
JEL: 
Q31
Q54
Document Type: 
Working Paper

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