Climate Change Mitigation and the Green Paradox

The applied research of Prof. Ngo Van Long demonstrates to decision-makers the risks of unintended consequences from climate change mitigation policies

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Background

Economists widely agree that climate change is one of the most important challenges facing the world economy. However, there are substantial differences among economists concerning the appropriate policy measures to combat climate change.

Proponents of carbon pricing argue that since the best policy must tackle the problem at its source, namely carbon emissions, countries should try to implement a carbon tax or emissions trading scheme. However, they do not agree on how a carbon price should be established. For instance, a sudden surge in the carbon price could have negative consequences for output and employment. On the other hand, if a carbon price is planned to be increased over time, suppliers of fossil fuels may try to avoid a future higher price by selling their output sooner than they would otherwise. In this were to happen, fossil fuel producers would increase short-term emissions, bringing climate change damages closer to the present.

This is known as the Green Paradox.

Other policy measures, such as subsidies to renewable resources, could also bring about a Green Paradox outcome. Further, in the context of international trade, if one country imposes a carbon price on energy production and, hence, a tariff on fossil fuel imports, fossil fuel suppliers will switch their exports to countries that do not. This will make fossil energy cheaper in the non-abating countries, and thus increase their emissions. This phenomenon is called Carbon Leakage. To combat Carbon Leakage, abating countries should tax the goods imported from non-abating countries, where the tax on imported products depend on their carbon contents. This policy is called Border Tax Adjustments (BTAs).

Key questions that Long has responded to in terms of the effectiveness of climate change mitigation include:

  • How to avoid the Green Paradox?

  • How to design border tax adjustments?

  • How to provide incentives for countries to join an International Environmental Agreement?

  • How should trade policies be used to complement environmental policies?

  • How should policies be adapted to changes in risks?

Policy Engagement

Long is one of the first economists to provide answers to the policy questions concerning the Green Paradox. He is also among the first to provide a review of the Green Paradox in open economies, using both the static approach and the dynamic approach. He has collaborated with economists at the Australian National University to empirically verify that the U.S. policy of subsidizing biofuel has resulted in a Green Paradox outcome, i.e. led to increased extraction of fossil fuels. He has also studied how climate change policy should respond to increases in risk and uncertainty. Long is involved in the formulation of the research program at the Munich-based Ifo Center for Energy, Climate and Exhaustible Resources, where he has been a Research Professor since 2011. (The Center has four research professors and 15 research staff, under the leadership of Professor Karen Pittel). Long is also a research fellow at CIRANO, a Montreal based research centre, which has two major research sectors: government policy and risk. Long is a fellow in the research team Public Policies.

Policy Outcomes

Long’s work has influenced thinking in policies to combat climate change. He has been invited to be a keynote speaker at numerous international conferences addressing climate change issues, including: the 2012 CESifo Venice Summer Institute Workshop on the Theory and Empirics on the Green Paradox in relation to Climate Change Policies, and the 2016 Tinbergen Institute Conference on Climate Change. Long is also a member of the Review Committee on the Tilburg Sustainability Center.

Long is a Professor of Economics at McGill University.

Find out more about Long's work and research affiliations:

CESifo Group Munich

Centre interuniversitaire de recherche en analyse des organisations

Read more about the Fellows of the Economics & Science Group

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