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Strategic Climate Policy in Small, Open Economies

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According to environmental interests groups governments should use their climate policy strategically in order to provide for a faster introduction of new, cleaner technologies. Strategic use of climate policy could also induce the development of a successful upstream abatement technology industry like the Danish windmill industry. Interestingly, this latter question has not been analyzed theoretically before. Our point of departure is a three-stage game between a government in a small country with a climate restriction, and a limited number of firms supplying carbon abatement technology. The government moves first, and may use its climate policy strategically to influence the behavior of the upstream technology firms. An especially stringent climate policy towards the polluting downstream sector may then in fact be well founded. It will increase the competition between the technology suppliers, and lead to lower domestic abatement costs. However, to our surprise, a strict environmental policy is not a particularly good industrial policy with respect to developing new successful export sectors.

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  • Mads Greaker & Knut Einar Rosendahl, 2006. "Strategic Climate Policy in Small, Open Economies," Discussion Papers 448, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:448
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    1. Zugravu-Soilita, Natalia, 2017. "Trade in Environmental Goods: Empirical Exploration of Direct and Indirect Effects on Pollution by Country’s Trade Status," EIA: Climate Change: Economic Impacts and Adaptation 266287, Fondazione Eni Enrico Mattei (FEEM).
    2. Bye, Brita & Jacobsen, Karl, 2011. "Restricted carbon emissions and directed R&D support; an applied general equilibrium analysis," Energy Economics, Elsevier, vol. 33(3), pages 543-555, May.
    3. Natalia Zugravu-Soilita, 2019. "Trade in Environmental Goods and Air Pollution: A Mediation Analysis to Estimate Total, Direct and Indirect Effects," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(3), pages 1125-1162, November.
    4. Bye, Brita & Fæhn, Taran & Heggedal, Tom-Reiel, 2009. "Welfare and growth impacts of innovation policies in a small, open economy; an applied general equilibrium analysis," Economic Modelling, Elsevier, vol. 26(5), pages 1075-1088, September.
    5. Heggedal, Tom-Reiel & Jacobsen, Karl, 2011. "Timing of innovation policies when carbon emissions are restricted: An applied general equilibrium analysis," Resource and Energy Economics, Elsevier, vol. 33(4), pages 913-937.
    6. Solveig Delabroye, 2014. "The Eco-Industry and Trade Agreements," CIRANO Working Papers 2014s-45, CIRANO.
    7. Natalia Zugravu-Soilita, 2016. "Trade in environmental goods and sustainable development: What are we learning from the transition economies’ experience?," Working Papers 2016.16, FAERE - French Association of Environmental and Resource Economists.
    8. Brita Bye & Karl Jacobsen, 2009. "On general versus emission saving R&D support," Discussion Papers 584, Statistics Norway, Research Department.
    9. Greaker, Mads & Rosendahl, Knut Einar, 2008. "Environmental policy with upstream pollution abatement technology firms," Journal of Environmental Economics and Management, Elsevier, vol. 56(3), pages 246-259, November.

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    More about this item

    Keywords

    Strategic climate policy; Abatement technology; Small; open economies;
    All these keywords.

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • Q2 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water

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