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Climate Policy to Defeat the Green Paradox

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Abstract

Carbon dioxide emissions have accelerated since the signing of the Kyoto Protocol. This discouraging development may partly be blamed on accelerating world growth and on lags in policy instruments. However, it also raises serious question concerning whether policies to reduce CO2 emissions are as effective as generally assumed. In recent years, a considerable number of studies have identified various feedback mechanisms of climate policies that often erode, and occasionally reinforce, their effectiveness. These studies generally focus on a few feedback mechanisms at a time, without capturing the entire effect. Partial accounting of policy feedbacks is common in many climate scenarios. The IPCC, for example, only accounts for direct leakage and rebound effects. This article attempts to map the aggregate effects of different types of climate policy feedback mechanisms in a cohesive framework. Controlling feedback effects is essential if the policy measures are to make any difference on a global level. A general conclusion is that aggregate policy feedback mechanisms tend to make current climate policies much less effective than is generally assumed. In fact, various policy measures involve a definite risk of ‘backfiring’ and actually increasing CO2 emissions. This risk is particularly pronounced once effects of climate policies on the pace of innovation in climate technology are considered. To stand any chance of controlling carbon emissions, it is imperative that feedback mechanisms are integrated into emission scenarios, targets for emission reduction and implementation of climate policy. In many cases, this will reduce the scope for subsidies to renewable energy sources, but increase the scope for other measures such as schemes to return carbon dioxide to the ground and to mitigate emissions of greenhouse gases from wetlands and oceans. A framework that incorporates policy feedback effects necessitates rethinking the design of the national and regional emission targets. This leads us to a new way of formulating emission targets that include feedback effects, the global impact target. Once the full climate policy feedback mechanisms are accounted for, there are probably only three main routes in climate policy that stand a chance of mitigating global warming: (a) returning carbon to the ground, (b) technological leaps in zero-emission energy technology that make it profitable to leave much carbon in the ground even in Annex II countries and (c) international agreements that make it more profitable to leave carbon in the ground or in forests.

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Notes

  1. A real difference in efficiency between the cap-and-trade and a tax system arise when uncertainty is introduced, depending on elasticities. See Weitzman (1974).

  2. The EU produces similar estimates, see EC (2008a, b). See also Paltsev (2001), Babiker (2005), Gerlagh and Kuik (2007) and Marschinski et al. (2008).

  3. Carlsson-Kanyama et al. (2007).

  4. This mechanism can be seen in analogy with textbook economics of the substation and income effects of a price change.

  5. Examples of such studies are Blair et al. (1984), Leung and Vesenka (1987), Mayo and Mathis (1988), Weinblatt (1989), Gately (1990), Greene (1992), Walker and Wirl (1993), Haughton and Sarker (1996).

  6. Examples of studies are Khazzoom (1986), Dubin et al. (1986), Dinan (1987), Hirst (1987).

  7. Greene et al. (1999).

  8. Examples are Bentzen (2004), Greening et al. (2000), Laitner (2000), Saunders (2008).

  9. Allan et al. (2007) and Turner (2009).

  10. See also Mizobuchi (2008) who argues that the rebound effect can be smaller if capital costs are large since the income effect is reduced.

  11. In Sweden, railroads used 1.4% of Sweden’s electricity consumption in 2006, but 34% of Sweden’s import of electricity which mostly came from Danish coal fired plants (SIKA 2007; Svensk Energi 2008).

  12. Wei (2009) analyses a general equilibrium model of global rebound effects.

  13. Barker et al. (2009).

  14. Sinn (2007, 2008). An early study that pointed to this effect was Felder and Rutherford (1993). Additional studies in this direction are Hoel and Kverndokk (1996), Rubio and Esriche (2001).

  15. While some oil producers may not be as far sighted as this reasoning implies, others, such as Saudi-Arabia, Kuwait and Mexico clearly pump much less oil in the short run than they could, and explicitly refer to long run price expectations.

  16. Brännlund (2007).

  17. Swentech (2007, p. 70).

  18. Danish Environmental Protection Agency (2007).

  19. EC (2007).

  20. EC (2001).

  21. Damm and Fedorov (2008).

  22. ITPS (2008).

  23. Lindström and Olofsson (1998), Gompers and Lerner (2001), Hellman and Puri (2002) and Bottazzi et al. (2004).

  24. Dealflower (2003) and Nutek (2007).

  25. A general equilibrium model of the Nordic energy market shows that there the energy efficiency target is in conflict with introducing many of the renewable energy sources on the Nordic market (Profu 2008).

  26. Sinn (2008).

  27. See, e.g. Anson and Turner (2009) and Binswanger (2001).

  28. Kågesson (2009).

  29. Maize and rapeseed are said to be particularly nitrogen-leaky, but the upshot is that all agricultural production that uses nitrogen-rich fertiliser release nitrous oxide (International Council for Science 2009).

  30. Even harvest residue from forests probably increases carbon dioxide emissions during the first 20–40 years. See, e.g. Holmgren et al. (2007).

  31. This do not include sectors within the EU-ETS.

  32. Carlsson-Kanyama et al. (2007).

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  1. Kungliga Tekniska Högskolan, Svenskt Näringsliv, 114 82, Stockholm, Sweden

    Stefan Fölster

  2. Pöyry Management Consulting (Sweden) AB, Banérgatan 16, 11523, Stockholm, Sweden

    Johan Nyström

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Fölster, S., Nyström, J. Climate Policy to Defeat the Green Paradox. AMBIO 39, 223–235 (2010). https://doi.org/10.1007/s13280-010-0030-7

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