The Green Paradox in Open Economies
CESifo, Munich, 2014
CESifo Working Paper No. 4639
![](https://cesifo.org/DocImg/cesifo1_wp4639.jpg?c=1689237121)
This paper explains how, in the context of incomplete coordination among all countries, unilateral policies that might at first sight seem pro-green could actually turn out to harm the global environment. The free-riding motives and the difficulty of reaching an effective international environmental agreement are reviewed. As a first step, the various channels that lead to carbon leakage in static models of open economies are identified, and some simulation results are reported. This is complemented by a review of the possibility of green paradox outcomes in dynamic open-economy models with an exhaustible resource exploited by far-sighted firms. It is shown that border tax adjustments can lead to a green paradox outcome. Directions for future research are suggested.
Resources and Environment
Energy and Climate Economics