Climate innovation risks worsening global warming through demand to exhaust prior fossil fuel supply.

The green paradox literature shows that seemingly obvious propositions about climate change policy are often wrong. Commitment to future green policies, whether these policies are carbon pricing or subsidies to the innovation of clean energy technology, tends to raise current carbon emissions. The logic of the paradox is familiar: the anticipation of green policies lowers the expected returns from the future sale of fossil fuels and therefore lowers the opportunity cost of selling the fossil fuel today. This reduces fossil fuel prices, increasing the consumption of fossil fuels. Carbon emissions therefore rise instead of falling. 

The green paradox is generally framed in terms of the unintended impact of policies.1 But the idea extends directly to the impact of innovation, whether innovation is influenced by policy or not (Hoel, 2008, van der Ploeg and Cees, 2012). Consider, for example, a market for energy produced from oil in which the current price is 100 dollar per barrel and extraction costs are low. Suppose that a clean, inexhaustible energy substitute is discovered and becomes immediately available at a cost equivalent to 60 dollars per barrel of oil. The owner of any conventional fuel deposit would prefer to sell at 59.99 or less rather than share the energy market with the substitute. Oil from these deposits will be sold at a lower price and exhausted before clean energy captures any market share at all. With the drop in price, oil will thus be extracted more intensively and exhausted at an earlier date. The current flow of carbon emissions rises as a result of innovation as does the near-term stock of atmospheric greenhouse gases.