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Substitution between biofuels and fossil fuels: Is there a green paradox?

Kompas, Thomas; Long, Ngo Van; Grafton, Quentin

Description

We show that (i) subsidies for renewable energy policies with the intention of encouraging substitution away from fossil fuels may accentuate climate change damages by hastening fossil fuel extraction, and that (ii) the opposite result holds under some specified conditions. We focus on the case of subsidies for renewable resources produced under increasing marginal costs, and assume that both the renewable resources and the fossil fuels are currently in use. Such subsidies have a direct effect...[Show more]

dc.contributor.authorKompas, Thomas
dc.contributor.authorLong, Ngo Van
dc.contributor.authorGrafton, Quentin
dc.date.accessioned2015-12-10T23:34:18Z
dc.identifier.issn0095-0696
dc.identifier.urihttp://hdl.handle.net/1885/69382
dc.description.abstractWe show that (i) subsidies for renewable energy policies with the intention of encouraging substitution away from fossil fuels may accentuate climate change damages by hastening fossil fuel extraction, and that (ii) the opposite result holds under some specified conditions. We focus on the case of subsidies for renewable resources produced under increasing marginal costs, and assume that both the renewable resources and the fossil fuels are currently in use. Such subsidies have a direct effect and an indirect effect working in opposite directions. The direct effect is the reduction in demand for fossil fuels at any given price. The indirect effect is the reduction in the current equilibrium price for fossil fuels, which tends to increase the amount of fossil fuels demanded. Whether the sum of the two effects will actually result in an earlier or later date of exhaustion of the stock of fossil fuels depends on the curvature of the demand curve for energy and of the supply curve for the renewable substitute.
dc.publisherAcademic Press
dc.sourceJournal of Environmental Economics and Management
dc.subjectKeywords: Demand curves; Equilibrium price; Fuel extraction; Indirect effects; Marginal costs; Renewable energy policy; Renewable resource; Renewable substitutes; The Green Paradox; Biofuels; Climate change; Costs; Energy policy; Fossil fuels; biofuel; climate chan Biofuels subsidies; Climate change; The Green Paradox
dc.titleSubstitution between biofuels and fossil fuels: Is there a green paradox?
dc.typeJournal article
local.description.notesImported from ARIES
local.identifier.citationvolume64
dc.date.issued2012
local.identifier.absfor140205 - Environment and Resource Economics
local.identifier.ariespublicationf5625xPUB2007
local.type.statusPublished Version
local.contributor.affiliationGrafton, R Quentin, College of Asia and the Pacific, ANU
local.contributor.affiliationKompas, Thomas, College of Asia and the Pacific, ANU
local.contributor.affiliationLong, Ngo Van, McGill University
local.description.embargo2037-12-31
local.bibliographicCitation.issue3
local.bibliographicCitation.startpage328
local.bibliographicCitation.lastpage341
local.identifier.doi10.1016/j.jeem.2012.07.008
local.identifier.absseo910299 - Microeconomics not elsewhere classified
dc.date.updated2016-02-24T08:52:44Z
local.identifier.scopusID2-s2.0-84869866509
local.identifier.thomsonID000312478000005
CollectionsANU Research Publications

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