R&D Subsidies and Climate Policy: Is There a "Free Lunch"?
AbstractBecause of the long-term nature of the climate problem, technological advances are often seen as an important component of any solution. However, when considering the potential for technology to help solve the climate problem, two market failures exist which lead to underinvestment in climate-friendly R&D: environmental externalities and the public goods nature of new knowledge. As a result, government subsidies to climate-friendly R&D projects are often proposed as part of a policy solution. Using the ENTICE model, I analyze the effectiveness of such subsidies, both with and without other climate policies, such as a carbon tax. While R&D subsidies do lead to significant increases in climate-friendly R&D, this R&D has little impact on the climate itself. Subsidies address the problem of knowledge as a public good, but they do not address the environmental externality, and thus offer no additional incentive to adopt new technologies. Moreover, high opportunity costs to R&D limit the potential role that subsidies can play. While R&D subsidies can improve efficiency, policies that directly affect the environmental externality have a much larger impact on both atmospheric temperature and economic welfare.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10880.
Date of creation: Nov 2004
Date of revision:
Note: PR EEE
Contact details of provider:
Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Web page: http://www.nber.org
More information through EDIRC
Find related papers by JEL classification:
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
- O38 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Government Policy
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
This paper has been announced in the following NEP Reports:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Goulder, Lawrence H. & Mathai, Koshy, 2000. "Optimal CO2 Abatement in the Presence of Induced Technological Change," Journal of Environmental Economics and Management, Elsevier, vol. 39(1), pages 1-38, January.
- Jaffe, Adam B, 1986.
"Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits, and Market Value,"
American Economic Review,
American Economic Association, vol. 76(5), pages 984-1001, December.
- Adam B. Jaffe, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits and Market Value," NBER Working Papers 1815, National Bureau of Economic Research, Inc.
- Kverndokk,S. & Rosendahl,K.E. & Rutherford,T.F., 2001.
"Climate policies and induced technological change : which to choose the carrot or the stick?,"
26/2001, Oslo University, Department of Economics.
- Snorre Kverndokk & Knut Rosendahl & Thomas Rutherford, 2004. "Climate Policies and Induced Technological Change: Which to Choose, the Carrot or the Stick?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 27(1), pages 21-41, January.
- Charles I. Jones & John C. Williams, 1997.
"Measuring the social return to R&D,"
Finance and Economics Discussion Series
1997-12, Board of Governors of the Federal Reserve System (U.S.).
- Pakes, Ariel, 1985. "On Patents, R&D, and the Stock Market Rate of Return," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 390-409, April.
- Richard C. Levin & Alvin K. Klevorick & Richard R. Nelson & Sidney G. Winter, 1987. "Appropriating the Returns from Industrial Research and Development," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(3), pages 783-832.
- Goolsbee, Austan, 1998.
"Does Government R&D Policy Mainly Benefit Scientists and Engineers?,"
American Economic Review,
American Economic Association, vol. 88(2), pages 298-302, May.
- Austan Goolsbee, 1998. "Does Government R&D Policy Mainly Benefit Scientists and Engineers?," NBER Working Papers 6532, National Bureau of Economic Research, Inc.
- Richard C. Levin & Alvin K. Klevorick & Richard R. Nelson & Sidney G. Winter, 1988. "Appropriating the Returns from Industrial R&D," Cowles Foundation Discussion Papers 862, Cowles Foundation for Research in Economics, Yale University.
- David Popp, 2003. "Lessons from Patents: Using Patents To Measure Technological Change in Environmental Models," NBER Working Papers 9978, National Bureau of Economic Research, Inc.
- Edwin Mansfield, 1996. "Microeconomic policy and technological change," Conference Series ; [Proceedings], Federal Reserve Bank of Boston, issue Jun, pages 183-213.
- Buonanno, Paolo & Carraro, Carlo & Galeotti, Marzio, 2003. "Endogenous induced technical change and the costs of Kyoto," Resource and Energy Economics, Elsevier, vol. 25(1), pages 11-34, February.
- Popp, David, 2004. "ENTICE: endogenous technological change in the DICE model of global warming," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 742-768, July.
- Coleman Bazelon & Kent Smetters, 1999. "Discounting Inside the Washington D.C. Beltway," Journal of Economic Perspectives, American Economic Association, vol. 13(4), pages 213-228, Fall.
- Mansfield, Edwin, et al, 1977. "Social and Private Rates of Return from Industrial Innovations," The Quarterly Journal of Economics, MIT Press, vol. 91(2), pages 221-40, May.
- Sabine Messner, 1997. "Endogenized technological learning in an energy systems model," Journal of Evolutionary Economics, Springer, vol. 7(3), pages 291-313.
- Pakes, Ariel, 1985. "On Patents, R & D, and the Stock Market Rate of Return," Scholarly Articles 3436409, Harvard University Department of Economics.
- David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, vol. 92(1), pages 160-180, March.
- Hendrik Van den Berg, 2012. "Explaining neoclassical economists' pro-growth agenda: does the popular Solow growth model bias economic analysis?," International Journal of Pluralism and Economics Education, Inderscience Enterprises Ltd, vol. 3(1), pages 40-62.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
If references are entirely missing, you can add them using this form.