Working Paper: NBER ID: w22731
Authors: Laurence J. Kotlikoff; Andrey Polbin; Andrey Zubarev
Abstract: The 2015 Paris Accord is meant to control our planet’s rising temperature. But it may be doing the opposite in gradually, rather than immediately reducing CO2 emissions. The Accord effectively tells dirty-energy producers to "use it or lose it." This may be accelerating their extraction and burning of fossil fuels and, thereby, be permanently raising temperatures. \nOur paper uses a simple OLG model to illustrate this long-noted Green Paradox. Its framework treats climate damage as a negative externality imposed by today’s generations on tomorrow’s – an externality that is, in part, irreversible and can tip the climate to permanently higher temperatures. In our model, delaying abatement can lead to larger changes in climate than doing nothing, reducing welfare for all generations. In contrast, immediate policy action can raise welfare for all generations. \nFinally we question the standard use of infinitely-lived, single-agent models, which assume, unrealistically, intergenerational altruism in determining optimal abatement policy. Their prescriptions can differ, potentially dramatically, from those needed to correct the negative climate externality today’s generations are imposing on tomorrow’s.
Keywords: Paris Accord; climate change; fossil fuels; overlapping generations model; green paradox
JEL Codes: F0; F20; H0; H2; H3; J20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Paris Accord (F53) | accelerated fossil fuel extraction (L71) |
| accelerated fossil fuel extraction (L71) | increased CO2 emissions (Q54) |
| delaying climate policy (Q58) | larger climate changes (Q54) |
| delaying action (C41) | larger climate changes than taking no action (Q54) |
| immediate policy action (D78) | improved welfare for all generations (I39) |
| delayed policies (J18) | negative welfare implications (D62) |