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Non-Cooperative and Cooperative Climate Policies with Anticipated Breakthrough Technology

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  • Rick Van der Ploeg
  • Niko Jaakkola

Abstract

Global warming can be curbed by pricing carbon emissions and thus substituting fossil fuel with renewable energy consumption. Breakthrough technologies (e.g., fusion energy) can reduce the cost of such policies. However, the chance of such a technology coming to market depends on investment. We model breakthroughs as an irreversible tipping point in a multi-country world, with different degrees of international cooperation. We show that international spill-over effects of R&D in carbon-free technologies lead to double free-riding, strategic over-pollution and underinvestment in green R&D, thus making climate change mitigation more difficult. We also show how the demand structure determines whether carbon pricing and R&D policies are substitutes or complements.

Suggested Citation

  • Rick Van der Ploeg & Niko Jaakkola, 2017. "Non-Cooperative and Cooperative Climate Policies with Anticipated Breakthrough Technology," OxCarre Working Papers 190, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.
    • Handle: RePEc:oxf:oxcrwp:190
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    Cited by:

    1. Yongyang Cai & William Brock & Anastasios Xepapadeas, 2023. "Climate Change Impact on Economic Growth: Regional Climate Policy under Cooperation and Noncooperation," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 10(3), pages 569-605.
    2. Frederick van der Ploeg & Armon Rezai, 2020. "Stranded Assets in the Transition to a Carbon-Free Economy," Annual Review of Resource Economics, Annual Reviews, vol. 12(1), pages 281-298, October.
    3. Gersbach, Hans & Riekhof, Marie-Catherine, 2021. "Permit markets, carbon prices and the creation of innovation clusters," Resource and Energy Economics, Elsevier, vol. 65(C).
    4. Yongyang Cai, 2020. "The Role of Uncertainty in Controlling Climate Change," Papers 2003.01615, arXiv.org, revised Oct 2020.
    5. van der Ploeg, Frederick, 2018. "Political economy of dynamic resource wars," Journal of Environmental Economics and Management, Elsevier, vol. 92(C), pages 765-782.
    6. Jin, Peizhen & Mangla, Sachin Kumar & Song, Malin, 2022. "The power of innovation diffusion: How patent transfer affects urban innovation quality," Journal of Business Research, Elsevier, vol. 145(C), pages 414-425.
    7. Javier Frutos & Víctor Gatón & Paula M. López-Pérez & Guiomar Martín-Herrán, 2022. "Investment in Cleaner Technologies in a Transboundary Pollution Dynamic Game: A Numerical Investigation," Dynamic Games and Applications, Springer, vol. 12(3), pages 813-843, September.
    8. Wagener, Florian & de Zeeuw, Aart, 2021. "Stable partial cooperation in managing systems with tipping points," Journal of Environmental Economics and Management, Elsevier, vol. 109(C).
    9. Wei Jin & Rick van der Ploeg & Lin Zhang, 2020. "Do We Still Need Carbon-Intensive Capital When Transitioning to a Green Economy?," CESifo Working Paper Series 8745, CESifo.
    10. Richard S.J. Tol, 2021. "Estimates of the social cost of carbon have not changed over time," Working Paper Series 0821, Department of Economics, University of Sussex Business School.
    11. Yongyang Cai & William Brock & Anastasios Xepapadeas & Kenneth Judd, 2019. "Climate Policy under Spatial Heat Transport: Cooperative and Noncooperative Regional Outcomes," Papers 1909.04009, arXiv.org.
    12. Guo, Jian-Xin & Zhu, Kaiwei, 2021. "Implications for enterprise to adopt cleaner technology: From the perspective of energy market and commodity market," Research in International Business and Finance, Elsevier, vol. 57(C).
    13. Richard S. J. Tol, 2021. "Estimates of the social cost of carbon have increased over time," Papers 2105.03656, arXiv.org, revised Aug 2022.

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    More about this item

    Keywords

    global warming; carbon pricing; renewable R&D; tipping point; international cooperation; non-cooperative policies; feedback Nash equilibrium;
    All these keywords.

    JEL classification:

    • D2 - Microeconomics - - Production and Organizations
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q35 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Hydrocarbon Resources
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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