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Polluting Non-Renewable Resources, Carbon Abatement and Climate Policy in a Romer Growth Model

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  • Grimaud, André
  • Magné, Bertrand
  • Rougé, Luc

Abstract

We study how the availability of an abatement technology affects the optimal use of polluting exhaustible resources, and optimal climate policies. We develop a Romer endogenous growth model in which the accumulated stock of greenhouse gas emissions harms social welfare. Since the abatement technology allows reducing the effective pollution for each unit of resource use, extraction and pollution are partially disconnected. Abatement accelerates the optimal extraction pace, though it may foster CO2 emissions for the early generations. Moreover, it is detrimental to output growth. Next, we study the implementation of a unit tax on carbon emissions. Contrary to previous results of the literature, its level here matters, as it provides the right incentives to abatement effort. When it is measured internal good, the optimal (Pigovian) carbon tax is increasing over time, while it is constant when expressed in utility. Moreover, it can be interpreted ex-post as a decreasing ad-valorem tax on the resource. Finally, we study the impact of the climate policy on the decentralized equilibrium: in particular, it fosters both the intensity and the rate of carbon abatement. In the near-term, it spurs research and output growth, while decreasing output level.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 548.

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Date of creation: Mar 2009
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Handle: RePEc:ide:wpaper:11187

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  2. Schou, Poul, 2002. " When Environmental Policy Is Superfluous: Growth and Polluting Resources," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(4), pages 605-20, December.
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Cited by:
  1. Karen Pittel & Lucas Bretschger, 2010. "The implications of heterogeneous resource intensities on technical change and growth," Canadian Journal of Economics, Canadian Economics Association, vol. 43(4), pages 1173-1197, November.
  2. Lucas Bretschger & Christos Karydas, 2013. "Optimum Growth and Carbon Policies with Lags in the Climate System," CER-ETH Economics working paper series 13/184, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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