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Second-Best Climate Agreements and Technology Policy

Author

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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.

Suggested Citation

  • Golombek Rolf & Hoel Michael, 2006. "Second-Best Climate Agreements and Technology Policy," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 6(1), pages 1-30, January.
  • Handle: RePEc:bpj:bejeap:v:advances.6:y:2006:i:1:n:1
    DOI: 10.2202/1538-0637.1472
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    Cited by:

    1. 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.
    2. Hong, Fuhai & Karp, Larry, 2012. "International Environmental Agreements with mixed strategies and investment," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 685-697.
    3. Enrica Cian & Samuel Carrara & Massimo Tavoni, 2014. "Innovation benefits from nuclear phase-out: can they compensate the costs?," Climatic Change, Springer, vol. 123(3), pages 637-650, April.
    4. Golombek, Rolf & Hoel, Michael, 2008. "Endogenous technology and tradable emission quotas," Resource and Energy Economics, Elsevier, vol. 30(2), pages 197-208, May.
    5. 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.
    6. Heather Lovell & Harriet Bulkeley & Diana Liverman, 2009. "Carbon Offsetting: Sustaining Consumption?," Environment and Planning A, , vol. 41(10), pages 2357-2379, October.
    7. 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.
    8. Lehmann, Paul & Gawel, Erik, 2013. "Why should support schemes for renewable electricity complement the EU emissions trading scheme?," Energy Policy, Elsevier, vol. 52(C), pages 597-607.
    9. 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.
    10. Rolf Golombek & Michael Hoel, 2011. "International Cooperation on Climate-friendly Technologies," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(4), pages 473-490, August.
    11. Fuhai Hong & Susheng Wang, 2012. "Climate Policy, Learning, and Technology Adoption in Small Countries," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 51(3), pages 391-411, March.
    12. Nachtigall, Daniel, 2016. "Linking Emissions Trading Schemes in the Presence of Research and Develoment Spillovers," VfS Annual Conference 2016 (Augsburg): Demographic Change 145721, Verein für Socialpolitik / German Economic Association.
    13. Eyckmans, Johan & Hagem, Cathrine, 2011. "The European Union's potential for strategic emissions trading through permit sales contracts," Resource and Energy Economics, Elsevier, vol. 33(1), pages 247-267, January.
    14. Basak Bayramoglu, 2010. "How does the design of international environmental agreements affect investment in environmentally-friendly technology?," Post-Print hal-01172961, HAL.
    15. 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.
    16. Alistair Ulph & David Ulph, 2007. "Climate change—environmental and technology policies in a strategic context," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 37(1), pages 159-180, May.

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