(Bio-)Fuel mandating and the green paradox
article
The theory on the green paradox has focused primarily on the consumption of a clean substitute produced using a static technology. In reality, we observe the gradual accu mulation of the clean substitute’s capacity, suggesting that supply decisions for the clean substitute and finite carbon resource should both be treated as dynamic. This paper shows that when climate policy is preannounced, and with simultaneous consumption of a finite carbon resource and a clean substitute, myopia in the supply of the latter leads to the green paradox. When clean substitute producers can accumulate capacity and are forward looking, the green paradox may or may not arise, however. In this setting, its occurrence depends both on the size of the discount rate and the remaining stock of carbon resource. These and other drivers of the green paradox are investigated in a multi-producer game-theoretic model calibrated to real-world global oil market data. The timing of mandating policy is shown to be the single most important variable for miti gating the green paradox. Moreover, for EU-2020 and US-2022 style biofuel mandating targets, a rather robust 0.3% decline in production is observed during the premandate phase, suggesting that concerns over the green paradox may be seriously overstated
TNO Identifier
957575
ISSN
01409883
Source
Energy Economics, 95(105014)
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