This paper extends the green paradox literature by providing empirical insights into its existence. To check the green paradox theory, I analyse the production of coal in four major coal‐producing US states that announced a greenhouse gas action plan. To form a statement on whether there is a treatment effect caused by the green policy, I employ Synthetic Control Methods to calculate counterfactual coal production trajectories. I find that Montana experienced a high and statistically significant increase in coal production that is supported by a set of validity indicators. However, there is no evidence for a paradox in Kentucky, Pennsylvania and Virginia.
This paper shifts the perspective of the recent green paradox literature towards the demand side. Based on a simple model, I show that a subsidy on input factors in a Cobb-Douglas production functionmay contribute substantially to postponing resource extraction into the future and, thereby, to limit the future costs of climate change. Specifically, indirect subsidies on human capital, such as investments in education, are plausible policy options to mitigate carbon dioxide emissions because it is robust to short-sighted incentives on the part of politicians and resource owners.
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