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Incentives for innovation and adoption of new technology under emissions trading

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  • 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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File URL: http://www.transportportal.se/SWoPEc/Innovation_incentives_under_CnT_WP.pdf
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Bibliographic Info

Paper provided by Swedish National Road & Transport Research Institute (VTI) in its series Working Papers with number 2009:10.

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Length: 21 pages
Date of creation: 09 Oct 2009
Date of revision:
Handle: RePEc:hhs:vtiwps:2009_010

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Postal: VTI, Transport Economics, P.O. Box 6056, SE-171 06 Solna, Sweden
Phone: +46-13-20 40 00
Fax: +46-13-14 14 36
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Web page: http://www.vti.se/tek
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Related research

Keywords: Tradable permits; Innovation; R&D; Policy; Dynamic inconsistency;

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