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Innovation and Climate Change Policy

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  • Joshua S. Gans

Abstract

This paper examines whether climate change policies will induce innovation in environmentally friendly technologies. The model demonstrates that a tighter emissions cap will reduce the scale of fossil fuel usage and that this will diminish incentives to improve fossil fuel efficiencies. In addition, such policies may stimulate the relative demand for innovations that improve the efficiency of alternative energy but carbon scarcity may diminish innovation incentives overall. Only for technologies that directly abate carbon pollution will there be an unambiguously positive impact on innovation. These results have implications for climate change targets and the design of climate change policy. (JEL O31, Q54, Q55, Q58)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.4.125
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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

Volume (Year): 4 (2012)
Issue (Month): 4 (November)
Pages: 125-45

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Handle: RePEc:aea:aejpol:v:4:y:2012:i:4:p:125-45

Note: DOI: 10.1257/pol.4.4.125
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References

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  1. Lea Nicita & Carlo Carraro & Emanuele Massetti, 2009. "How Does Climate Policy Affect Technical Change? An Analysis of the Direction and Pace of Technical Progress in a Climate-Economy Model," Working Papers 2009.8, Fondazione Eni Enrico Mattei.
  2. Pizer, William A. & Popp, David, 2008. "Endogenizing technological change: Matching empirical evidence to modeling needs," Energy Economics, Elsevier, vol. 30(6), pages 2754-2770, November.
  3. Gans, J.S., 1995. "Comparative Statics Made Simple: An Introduction to Recent Advances," Papers 95/20, New South Wales - School of Economics.
  4. Sue Wing, Ian, 2006. "Representing induced technological change in models for climate policy analysis," Energy Economics, Elsevier, vol. 28(5-6), pages 539-562, November.
  5. Goulder, Lawrence H. & Mathai, Koshy, 2000. "Optimal CO2 Abatement in the Presence of Induced Technological Change," Journal of Environmental Economics and Management, Elsevier, vol. 39(1), pages 1-38, January.
  6. Acemoglu, Daron, 2009. "When Does Labor Scarcity Encourage Innovation?," CEPR Discussion Papers 7247, C.E.P.R. Discussion Papers.
  7. David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, vol. 92(1), pages 160-180, March.
  8. van Zon, Adriaan & Yetkiner, I. Hakan, 2003. "An endogenous growth model with embodied energy-saving technical change," Resource and Energy Economics, Elsevier, vol. 25(1), pages 81-103, February.
  9. Gillingham, Kenneth & Newell, Richard G. & Pizer, William A., 2008. "Modeling endogenous technological change for climate policy analysis," Energy Economics, Elsevier, vol. 30(6), pages 2734-2753, November.
  10. Reyer Gerlagh & Bob van der Zwaan, 2006. "Options and Instruments for a Deep Cut in CO2 Emissions: Carbon Dioxide Capture or Renewables, Taxes or Subsidies?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 25-48.
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Cited by:
  1. Daubanes, Julien & Grimaud, André & Rougé, Luc, 2012. "Green Paradox and Directed Technical Change: The Effects of Subsidies to Clean R&D," IDEI Working Papers 743, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Leeuwen, George van & Mohnen, Pierre, 2013. "Revisiting the porter hypothesis: An empirical analysis of green innovation for the Netherlands," MERIT Working Papers 002, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
  3. Aghion, Philippe & Dechezleprêtre, Antoine & Hemous, David & Martin, Ralf & Van Reenen, John, 2012. "Carbon Taxes, Path Dependency and Directed Technical Change: Evidence from the Auto Industry," CEPR Discussion Papers 9267, C.E.P.R. Discussion Papers.

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