Do strong oligopolies reverse Green Paradox effects?

Abstract

In a competitive market renewable energy subsidies or postponement of carbon pricing tend to boost emissions and global warming in the short run. This so-called Green Paradox effect may be reversed if fossil-fuel firms operate under an oligopoly and the number of members is low enough. A reversal of the Green Paradox always occurs under a fossil fuel monopoly. If the extraction costs of fossil fuel depend on the aggregate remaining stock of reserves, Green Paradox effects vanish if the number of oligopolists becomes infinitely large. For an intermediate number of members, a Green Paradox occurs. The strength of the Green Paradox effect depends non-monotonically on the number of oligopolists. We also show that a Green Paradox is more likely for higher slopes of the demand curve, higher sensitivities of unit extraction costs with respect to remaining reserves, and lower interest rates.