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Green Paradox and Directed Technical Change: The Effects of Subsidies to Clean R&D

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  • Daubanes, Julien
  • Grimaud, André
  • Rougé, Luc

Abstract

The "green paradox" literature points out that environmental policies which are anticipated to become gradually more stringent over time may induce a more rapid extraction of fossil fuels, thus having a detrimental effect to the environment. The manifestation of such phenomena has been extensively studied in the case of taxes directly applied to the extraction of a polluting non-renewable resource and of subsidies applied to its non-polluting substitutes. This paper examines the effects of subsidies to "clean" R&D activities, aimed to improve the productivity of non-polluting substitutes. We borrow standard assumptions from the directed-technical-change literature to take a full account of the private incentives to perform R&D and of the patterns of complementarity/substitutability between dirty resource and clean non-resource sectors. We show that a gradual increase in relative subsidies to clean R&D activities does not have the adverse green paradox effect, which contradicts an earlier made conjecture. Instead, the presence of several R&D sectors implies arbitrages which give rise to other quite paradoxical results. However substitutable or complementary sectors are, and whatever the induced technological bias is, clean-R&D-support policies always enhance the long-run productivity of the resource and thus result in a less rapid extraction.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 743.

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Date of creation: Aug 2012
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Handle: RePEc:ide:wpaper:26272

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  1. R. Quentin Grafton & Tom Kompas & Ngo Van Long, 2010. "Biofuels Subsidies and the Green Paradox," CESifo Working Paper Series 2960, CESifo Group Munich.
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  16. Hart, Rob, 2004. "Growth, environment and innovation--a model with production vintages and environmentally oriented research," Journal of Environmental Economics and Management, Elsevier, vol. 48(3), pages 1078-1098, November.
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Cited by:
  1. Frederick van der Ploeg & Cees Withagen, 2013. "Global Warming and the Green Paradox," OxCarre Working Papers 116, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
  2. Grimaud, André & Neubauer, Mauricio & Rougé, Luc, 2013. "Politiques de R&D, Taxe Carbone et Paradoxe Vert," IDEI Working Papers 806, Institut d'Économie Industrielle (IDEI), Toulouse.

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