This paper studies the impacts of renewable energy support policies on energy prices, fossil
fuel supply and thus carbon emissions from fossil fuels. Such supports are climate friendly if
the renewables are already competitive against fossil fuels. But if the renewables are not yet
competitive, the climate change impacts are often ambiguous and are sensitive to capacity
constraints of renewables production and to the fossil fuel market structure. If the renewables

Abstract: This paper demonstrates that unintended effects of climate policies (Green Paradox effects) also arise in general equilibrium when countries compete for mobile factors of production (capital and resources/energy). Second, it shows that countries have a rationale to use strictly positive source-based capital taxes to slow down resource extraction. Notably, this result comes about in the absence of any revenue requirements by the government, and independently of the elasticity of substitution between capital and resources in production.