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Endogenous technical progress induced by CO 2 reduction policies: Simulation results for Austria

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  • Heinz Glueck
  • Stefan Schleicher
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    Abstract

    Almost all model simulations of CO 2 reduction policies focus on the effects of changes in the relative price of energy compared to the other factors of production caused by various energy taxation schemes. Typical results of these simulations as reported e.g. from the GREEN model of OECD show depressing effects on real GDP and upward pressures on inflation. We propose the hypothesis that these results may be biased due to an inadequate treatment of technical progress and proceed as follows: Firstly, instead of treating technical progress as exogenous we explicitly model theprice induced change of the composition of capital stock of households and producers with its effects on energy efficiency and investment demand. Secondly, we investigate to what extent adouble dividend policy which boosts CO 2 reduction technologies by special programs funded by the additional tax revenues differs from the mere price induced technological changes. We implement these propositions within the framework of a macroeconometric model for Austria which emphasizes substitution between energy and capital in providing energy services for households and producers. The following results are obtained: Firstly, we indicate how misleading the GDP effects may be if they result from lower energy intensities but still maintain the required energy services. Secondly, we investigate the effects of various energy taxation policies under different compensation schemes. Instead of merely relying on price-induced technological change we strongly advocate compensation programs which provide additional incentives for implementing high efficiency energy technologies such as cogeneration equipment or buildings with improved thermal standards. Copyright Kluwer Academic Publishers 1995

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    File URL: http://hdl.handle.net/10.1007/BF00693021
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    Bibliographic Info

    Article provided by European Association of Environmental and Resource Economists in its journal Environmental & Resource Economics.

    Volume (Year): 5 (1995)
    Issue (Month): 2 (March)
    Pages: 151-163

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    Handle: RePEc:kap:enreec:v:5:y:1995:i:2:p:151-163

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    Web page: http://www.springerlink.com/link.asp?id=100263

    Related research

    Keywords: Endogenous technical progress; CO 2 reduction policies; energy taxes;

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    1. William D. Nordhaus, 1993. "Reflections on the Economics of Climate Change," Journal of Economic Perspectives, American Economic Association, vol. 7(4), pages 11-25, Fall.
    2. William R. Cline, 1992. "Economics of Global Warming, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 39.
    3. Robert M. Solow, 1994. "Perspectives on Growth Theory," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 45-54, Winter.
    4. Schelling, Thomas C, 1992. "Some Economics of Global Warming," American Economic Review, American Economic Association, vol. 82(1), pages 1-14, March.
    5. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    6. Peter Hoeller & Andrew Dean & Masahiro Hayafuji, 1992. "New Issues, New Results: The OECD's Second Survey of the Macroeconomic Costs of Reducing CO2 Emissions," OECD Economics Department Working Papers 123, OECD Publishing.
    7. Pearce, David W, 1991. "The Role of Carbon Taxes in Adjusting to Global Warming," Economic Journal, Royal Economic Society, vol. 101(407), pages 938-48, July.
    8. Paul M. Romer, 1994. "The Origins of Endogenous Growth," Journal of Economic Perspectives, American Economic Association, vol. 8(1), pages 3-22, Winter.
    9. Kay, John A, 1990. "Tax Policy: A Survey," Economic Journal, Royal Economic Society, vol. 100(399), pages 18-75, March.
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