Mandell, Svante () (vti - Swedish National Road & Transport Research Institute)
Abstract
A common claim in both the public and academic debate is that a tradable emission permits scheme does not provide sufficient incentives for R&D investments. The present paper addresses R&D investments and penetration rates of new technology focusing on the specific characteristics of a tradable permits market. It is showed that a complex dependency between the emissions cap, the market price for emission permits, the price for technology once it is developed and the R&D investment decision add an additional layer to the ‘traditional’ market failures associated with R&D. Even though the cap and how it is calibrated in response to the introduction of new technology is shown to be of importance both for the level of R&D investment and the technology’s penetration rate, we argue that the policy maker’s ability to use the cap to counter market failures in the R&D stage is limited. This is due to a dynamic inconsistency problem where the policy maker is unable to credibly commit to a future policy that is more stringent than motivated by efficiency concerns given the then existing technology. Such a policy may not be stringent enough to cover the necessary R&D investments.
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Publisher Info
Paper provided by Swedish National Road & Transport Research Institute (VTI) in its series Working Papers with number
2009:10.
Length: 21 pages Date of creation: 09 Oct 2009 Date of revision: Handle: RePEc:hhs:vtiwps:2009_010
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