The Green Paradox of the Economics of Exhaustible Resources

The green paradox states that an increasing tax on emissions of carbon dioxide, consonant with expected increase in their marginal damages, may induce oil producers to shift their production toward the present and thereby to exacerbate the problem of climatic change. The model is based on Hotelling models of resource use that do not take the natural and technical features of oil production into account. When these features are taken into account, the prediction of the green paradox is unlikely.