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Emission Trading Restrictions with Endogenous Technological Change

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  • Paolo Buonanno
  • Carlo Carraro
  • Efrem Castelnuovo
  • Marzio Galeotti

Abstract

In this paper we use a simple climate model with endogenous environmental technical change in order to analyse the effects on equity and efficiency of different degrees of restrictions on trade in the market for pollution permits. The model is obtained by incorporating in Nordhaus and Yang (1996)’s RICE model and the notion of induced technical change as proposed in Goulder and Mathai (1998). With the help of such a model we aim at assessing the pros and cons of the introduction of ceilings on emission trading. In particular, we analyse the implications of restrictions on trading both in terms of their cost effectiveness and in terms of their distributional effects. The analysis takes into account the role of environmental technical change that could be enhanced by the presence of ceilings on trading. However, this effect is shown to be offset by the increased abatement cost induced by the larger than optimal adoption of domestic policy measures when ceilings are binding. Hence, our analysis provides little support in favour of quantitative restrictions on emission trading even when these restrictions actually have a positive impact on technical change. Even in terms of equity, ceilings find no justification within our theoretical and modelling framework. Indeed, we find that flexibility mechanisms in the presence of endogenous technical change increase equity and that the highest equity levels are achieved without ceilings, both in the short and in the long run.

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Bibliographic Info

Article provided by Springer in its journal International Environmental Agreements.

Volume (Year): 1 (2001)
Issue (Month): 3 (July)
Pages: 379-395

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Handle: RePEc:spr:ieaple:v:1:y:2001:i:3:p:379-395

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Web page: http://www.springer.com/economics/journal/10784

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Related research

Keywords: ceilings; climate policy; emission trading; environmental modelling; integrated assessment; technical change;

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References

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  9. Zvi Griliches, 1984. "R & D, Patents, and Productivity," NBER Books, National Bureau of Economic Research, Inc, number gril84-1, July.
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  12. Zhang, Zhong Xiang, 1999. "Estimating the size of the potential market for the Kyoto flexibility mechanisms," CCSO Working Papers 199920, University of Groningen, CCSO Centre for Economic Research.
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Citations

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Cited by:
  1. Barbara Buchner & Carlo Carraro & Igor Cersosimo & Carmen Marchiori, 2002. "Back to Kyoto? US Participation and the Linkage between R&D and Climate Cooperation," CESifo Working Paper Series 688, CESifo Group Munich.
  2. Castelnuovo, Efrem & Galeotti, Marzio & Gambarelli, Gretel & Vergalli, Sergio, 2005. "Learning-by-Doing vs. Learning by Researching in a model of climate change policy analysis," Ecological Economics, Elsevier, vol. 54(2-3), pages 261-276, August.
  3. Gil-Moltó, Maria José & Varvarigos, Dimitrios, 2013. "Emission taxes and the adoption of cleaner technologies: The case of environmentally conscious consumers," Resource and Energy Economics, Elsevier, vol. 35(4), pages 486-504.
  4. Barbara Buchner & Marzio Galeotti, 2003. "Climate Policy and Economic Growth in Developing Countries," Working Papers 2003.91, Fondazione Eni Enrico Mattei.
  5. Marzio Galeotti, 2003. "Environment and Economic Growth: Is Technical Change the Key to Decoupling?," Working Papers 2003.90, Fondazione Eni Enrico Mattei.
  6. Barbara Buchner & Carlo Carraro, 2006. "‘US, China and the Economics of Climate Negotiations’," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 6(1), pages 63-89, 03.
  7. Carlo Carraro & Barbara Buchner, 2006. "Regional and sub-global climate blocs. A game-theoretic perspective on bottom-up climate regimes," Working Papers 2006_10, Department of Economics, University of Venice "Ca' Foscari".
  8. Bretschger, Lucas & Ramer, Roger & Schwark, Florentine, 2011. "Growth effects of carbon policies: Applying a fully dynamic CGE model with heterogeneous capital," Resource and Energy Economics, Elsevier, vol. 33(4), pages 963-980.
  9. Marzio Galeotti & Carlo Carraro, 2004. "Does Endogenous Technical Change Make a Difference in Climate Policy Analysis? A Robustness Exercise with the FEEM-RICE Model," Working Papers 2004.152, Fondazione Eni Enrico Mattei.
  10. Carlo Carraro & Barbara Buchner, 2003. "China and the Evolution of the Present Climate Regime," Working Papers 2003.103, Fondazione Eni Enrico Mattei.
  11. Florentine Schwark, 2010. "Economics of Endogenous Technical Change in CGE Models - The Role of Gains from Specialization," CER-ETH Economics working paper series 10/130, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  12. Jesse Matheson, 2011. "Prices and social behavior: A study of adult smoking in Canadian Aboriginal communities," Discussion Papers in Economics 11/50, Department of Economics, University of Leicester, revised Dec 2012.
  13. Golombek, Rolf & Hoel, Michael, 2003. "Climate Policy under Technology Spillovers," Memorandum 22/2003, Oslo University, Department of Economics.
  14. Reyer Gerlagh & Bob van der Zwaan & Marjan Hofkes & Ger Klaassen, 2004. "Impacts of CO 2-Taxes in an Economy with Niche Markets and Learning-by-Doing," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 28(3), pages 367-394, July.
  15. Lucas Bretschger & Roger Ramer & Florentine Schwark, 2010. "Long-Run Effects of Post-Kyoto Policies: Applying a Fully Dynamic CGE model with Heterogeneous Capital," CER-ETH Economics working paper series 10/129, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  16. Takanobu Kosugi, 2010. "Assessments of ‘Greenhouse Insurance’: A Methodological Review," Asia-Pacific Financial Markets, Springer, vol. 17(4), pages 345-363, December.

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