FEEM Research Seminar on "The Green Paradox, A Hotelling Cul de Sac"
12:30 - 14:00
Fondazione Eni Enrico Mattei
Isola di San Giorgio Maggiore
video-conference (at FEEM Milan) and GoToMeeting broadcast available
h. 12.30 Seminar
In Milan and Venice a light lunch will follow the seminar for registered participants.
Registration is required. Please confirm your participation here.
Seminars Office, firstname.lastname@example.org
Robert Cairns, McGill University
The green paradox is an effect by which an increasing tax per unit on oil production, aimed at tracking damages from CO2 emissions, induces an increase in world production and a decrease in price in the near term. The increase is a rational response in a Hotelling exhaustible-resource model. We simulate the decisions of a price-taking producer in response to a tax of various shapes. In contrast to a Hotelling model, our extraction technology involves irreversible, lumpy investments in exploration and development. In addition, we assume output from a developed reserve is subject to natural decline at a rate that is determined by the sunk development investment and the geology of the reserve. Decisions are far more complicated, and results far subtler, than in the Hotelling framework. Given a price path, we show that almost any form of tax causes a reduction in the level of development and initial production, thereby contradicting the hypothesis of the green paradox. A major consequence of the tax is a substantial deadweight loss.
The seminar is organised under the GEMCLIME Project (Global Excellence in Modelling of Climate and Energy – GEMCLIME, G.A. n. 681228).