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Strategic Climate Policy in Small, Open Economies

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  • Mads Greaker
  • Knut Einar Rosendahl

    ()
    (Statistics Norway)

Abstract

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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Bibliographic Info

Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 448.

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Date of creation: Mar 2006
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Handle: RePEc:ssb:dispap:448

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Keywords: Strategic climate policy; Abatement technology; Small; open economies;

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References

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  1. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
  2. Anthony Venables, 1994. "Trade Policy under Imperfect Competition: A Numerical Assessment," NBER Chapters, in: Empirical Studies of Strategic Trade Policy, pages 41-66 National Bureau of Economic Research, Inc.
  3. Downing, Paul B. & White, Lawrence J., 1986. "Innovation in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 13(1), pages 18-29, March.
  4. Klaassen, Ger & Miketa, Asami & Larsen, Katarina & Sundqvist, Thomas, 2005. "The impact of R&D on innovation for wind energy in Denmark, Germany and the United Kingdom," Ecological Economics, Elsevier, vol. 54(2-3), pages 227-240, August.
  5. Jung, Chulho & Krutilla, Kerry & Boyd, Roy, 1996. "Incentives for Advanced Pollution Abatement Technology at the Industry Level: An Evaluation of Policy Alternatives," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 95-111, January.
  6. Ulph, Alistair, 1996. "Environmental Policy and International Trade when Governments and Producers Act Strategically," Journal of Environmental Economics and Management, Elsevier, vol. 30(3), pages 265-281, May.
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Cited by:
  1. Tom-Reiel Heggedal & Karl Jacobsen, 2008. "Timing of innovation policies when carbon emissions are restricted: an applied general equilibrium analysis," Discussion Papers 536, Research Department of Statistics Norway.
  2. Brita Bye & Taran Fæhn & Tom-Reiel Heggedal, 2007. "Welfare and growth impacts of innovation policies in a small, open economy. An applied general equilibrium analysis," Discussion Papers 510, Research Department of Statistics Norway.
  3. Brita Bye & Karl Jacobsen, 2009. "On general versus emission saving R&D support," Discussion Papers 584, Research Department of Statistics Norway.

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