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Second-Best Climate Agreements and Technology Policy

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  • Golombek Rolf

    ()
    (Frisch Centre)

  • Hoel Michael

    ()
    (Univerisity of Oslo)

Abstract

We study second-best climate agreements in the presence of technology spillovers within and across countries, where the technology externalities within each country are corrected through a domestic subsidy of R&D investments. We compare the properties of two types of international climate agreements when the inter-country externalities from R&D are not regulated through the climate agreement. With an international agreement on emission quotas, the equilibrium R&D subsidy is lower than the socially optimal subsidy. The equilibrium subsidy is even lower if the climate agreement instead dictates that a common carbon tax should be imposed in all countries. Under a quota agreement, total quotas should be set low enough for the price of carbon to exceed the Pigovian level, whereas the opposite may be true under a tax agreement. We also show that social costs are higher under a second-best tax agreement than under a second-best quota agreement.

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Bibliographic Info

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

Volume (Year): 6 (2006)
Issue (Month): 1 (January)
Pages: 1-30

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Handle: RePEc:bpj:bejeap:v:advances.6:y:2006:i:1:n:1

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

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Cited by:
  1. De Cian, Enrica & Tavoni, Massimo, 2012. "Do technology externalities justify restrictions on emission permit trading?," Resource and Energy Economics, Elsevier, vol. 34(4), pages 624-646.
  2. Belgodere, Antoine & Prunetti, Dominique, 2007. "International coordination over emissions and R&D expenditures: What does oil scarcity change?," MPRA Paper 28164, University Library of Munich, Germany.
  3. Rolf Golombek & Michael Hoel, 2011. "International Cooperation on Climate-friendly Technologies," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 49(4), pages 473-490, August.
  4. Michael Hoel & Rolf Golombek, 2006. "Endogenous Technology and Tradable Emission Quotas," Working Papers 2006.42, Fondazione Eni Enrico Mattei.
  5. Hong, Fuhai & Karp, Larry, 2012. "International Environmental Agreements with Mixed Strategies and Investment," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt0xf976x1, Department of Agricultural & Resource Economics, UC Berkeley.
  6. 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.
  7. Alistair Ulph & David Ulph, 2007. "Climate change—environmental and technology policies in a strategic context," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 37(1), pages 159-180, May.
  8. Ziesemer, Thomas & Michaelis, Peter, 2011. "Strategic environmental policy and the accumulation of knowledge," Structural Change and Economic Dynamics, Elsevier, vol. 22(2), pages 180-191, June.
  9. Fuhai Hong & Susheng Wang, 2012. "Climate Policy, Learning, and Technology Adoption in Small Countries," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 51(3), pages 391-411, March.
  10. 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.

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