(Bio-)Fuel mandating and the green paradox

The theory on the green paradox has focused primarily consumption of a clean substitute produced using static technology. In reality, we observe gradual accumulation substitute’s capacity, suggesting that supply decisions for and finite carbon resource should both be treated as dynamic. This paper shows when climate policy is preannounced, with simultaneous substitute, myopia in latter leads to paradox. When producers can accumulate capacity are forward looking, may or not arise, however. this setting, its occurrence depends size discount rate remaining stock resource. These other drivers investigated multi-producer game-theoretic model calibrated real-world global oil market data. timing mandating shown single most important variable mitigating Moreover, EU-2020 US-2022 style biofuel targets, rather robust 0.3% decline production observed during premandate phase, concerns over seriously overstated.