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Carbon Taxes and Innovation without Commitment

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Author Info

  • Golombek Rolf

    ()
    (Frisch Centre)

  • Greaker Mads

    ()
    (Statistics Norway)

  • Hoel Michael

    ()
    (University of Oslo)

Abstract

Climate mitigation policy should be imposed over a long period, and spur innovation of new technologies in order to make stabilization of green house gas concentration economically feasible. The government may announce current and future policy packages that stimulate current R&D in climate-friendly technologies. However, once climate-friendly technologies have been developed, the government may have no incentive to implement the pre-announced future policies, that is, there may be a time inconsistency problem. We show that if the government can optimally subsidize R&D today, there is no time inconsistency problem. Thus, lack of commitment is not an argument for higher current R&D subsidies than the first-best subsidy. If the offered R&D subsidy is lower than the optimal subsidy, the current (sub-game perfect) carbon tax rate exceeds the first-best carbon tax rate.

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File URL: http://www.degruyter.com/view/j/bejeap.2010.10.1/bejeap.2010.10.1.2473/bejeap.2010.10.1.2473.xml?format=INT
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Bibliographic Info

Article provided by De Gruyter in its journal The B.E. Journal of Economic Analysis & Policy.

Volume (Year): 10 (2010)
Issue (Month): 1 (April)
Pages: 1-21

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Handle: RePEc:bpj:bejeap:v:10:y:2010:i:1:n:32

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Web page: http://www.degruyter.com

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Cited by:
  1. Aalbers, Rob & Shestalova, Victoria & Kocsis, Viktória, 2013. "Innovation policy for directing technical change in the power sector," Energy Policy, Elsevier, vol. 63(C), pages 1240-1250.
  2. Lehmann, Paul, 2013. "Supplementing an emissions tax by a feed-in tariff for renewable electricity to address learning spillovers," Energy Policy, Elsevier, vol. 61(C), pages 635-641.
  3. Strand, Jon & Miller, Sebastian & Siddiqui, Sauleh, 2011. "Infrastructure investments under uncertainty with the possibility of retrofit : theory and simulations," Policy Research Working Paper Series 5516, The World Bank.
  4. Rob Aalbers & Victoria Shestalova & Viktoria Kocsis, 2012. "Innovation policy for directing technical change in the power sector," CPB Discussion Paper 223, CPB Netherlands Bureau for Economic Policy Analysis.

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