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Climate Policy as Expectation Management?

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  • Daiju Narita

Abstract

It is believed that the primary economic solution to climate change is an introduction of a carbon pricing system anchored to the social cost of carbon, either as a form of tax or tradable permits. Potentially significant externalities accompanying the introduction of emission-reducing technologies, however, imply that the standard argument does not capture some important aspects for the designing of climate policy such as expectation-driven technology adoption. By using a simple model, we show some possible cases where carbon emission reduction progresses in a self-fulfilling prophecy by firms expecting others’ future actions. In such circumstances, the carbon pricing system does not have much influence on determining the final outcome of economy-wide emission reduction. This highlights the danger of overemphasis on finding the “right” carbon price in policy making and the role of climate policy as expectation management

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File URL: https://www.ifw-members.ifw-kiel.de/publications/climate-policy-as-expectation-management/kwp-1624.pdf
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Bibliographic Info

Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1624.

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Length: 17 pages
Date of creation: May 2010
Date of revision:
Handle: RePEc:kie:kieliw:1624

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Keywords: climate policy; technology choice; expectations; multiple equilibria;

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Cited by:
  1. Daiju Narita & Ulrich J. Wagner, 2011. "Expectation-Driven Climate Treaties with Breakthrough Technologies," Kiel Working Papers 1732, Kiel Institute for the World Economy.

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