Incentives for innovation and adoption of new technology under emissions trading
AbstractA 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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Bibliographic InfoPaper 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:
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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
Web page: http://www.vti.se/tek
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Tradable permits; Innovation; R&D; Policy; Dynamic inconsistency;
Find related papers by JEL classification:
- L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
- Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
- Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-17 (All new papers)
- NEP-ENV-2009-10-17 (Environmental Economics)
- NEP-INO-2009-10-17 (Innovation)
- NEP-IPR-2009-10-17 (Intellectual Property Rights)
- NEP-MIC-2009-10-17 (Microeconomics)
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