Climate Policy as Expectation Management?
AbstractIt is often emphasized that the primary economic solution to climate change is the introduction of a carbon pricing system (tax or tradable permits) anchored to the social cost of carbon. This standard argument, however, misses the fact that if emission reduction is sought through the use of technologies with network externalities, the level of emission reduction can become expectation-driven rather than uniquely determined by the level of carbon price. Using a simple model, the paper discusses the possibility that the effectiveness of carbon policy is influenced by firms’ belief on carbon policy and technology penetration in the future – in extreme cases, expectations prevail over policy. This feature 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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Bibliographic InfoPaper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1681.
Length: 30 pages
Date of creation: Feb 2011
Date of revision:
climate policy; technology choice; expectations; multiple equilibria;
Find related papers by JEL classification:
- Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-05 (All new papers)
- NEP-CBA-2011-03-05 (Central Banking)
- NEP-ENE-2011-03-05 (Energy Economics)
- NEP-ENV-2011-03-05 (Environmental Economics)
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