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Timing of innovation policies when carbon emissions are restricted: an applied general equilibrium analysis

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  • Tom-Reiel Heggedal
  • Karl Jacobsen

    ()
    (Statistics Norway)

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    Abstract

    This paper studies the timing of subsidies for environmental research and development (R&D) and how innovation policy is influenced by the costs of emissions. We use a dynamic computable general equilibrium (CGE) model with both general R&D and specific environmental R&D. We find two results that are important when subsidizing environmental R&D in order to target inefficiencies in the research markets. Firstly, the welfare gain from subsidies is larger when the costs of emissions are higher. This is because a high carbon tax increases the social (efficient) investment in environmental R&D, in excess of the private investment in R&D. Secondly, the welfare gain is greater when there is a falling time profile of the rate of subsidies for environmental R&D, rather than a constant or increasing profile. The reason is that the innovation externalities are larger in early periods.

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    Bibliographic Info

    Paper provided by Research Department of Statistics Norway in its series Discussion Papers with number 536.

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    Date of creation: Apr 2008
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    Handle: RePEc:ssb:dispap:536

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    Keywords: Applied general equilibrium; endogenous growth; research and development; carbon emissions.;

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    1. Parry, Ian & Pizer, William & Fischer, Carolyn, 2000. "How Important is Technological Innovation in Protecting the Environment?," Discussion Papers dp-00-15, Resources For the Future.
    2. Leahy, Dermot & Neary, J Peter, 1999. "R&D Spillovers and the Case for Industrial Policy in an Open Economy," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 40-59, January.
    3. Gillingham, Kenneth T. & Newell, Richard G. & Pizer, William A., 2007. "Modeling Endogenous Technological Change for Climate Policy Analysis," Discussion Papers dp-07-14, Resources For the Future.
    4. Paul M Romer, 1999. "Endogenous Technological Change," Levine's Working Paper Archive 2135, David K. Levine.
    5. Wolfgang Keller, 2001. "International Technology Diffusion," NBER Working Papers 8573, National Bureau of Economic Research, Inc.
    6. Hwan C . Lin & Benjamin Russo, 2002. "Growth Effects of Capital Income Taxes: How Much Does Endogenous Innovation Matter?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(4), pages 613-640, October.
    7. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-84, August.
    8. Fischer, Carolyn & Newell, Richard G., 2008. "Environmental and technology policies for climate mitigation," Journal of Environmental Economics and Management, Elsevier, vol. 55(2), pages 142-162, March.
    9. Charles I. Jones & John C. Williams, . "Too Much of a Good Thing? The Economics of Investment in R&D," Working Papers 95006, Stanford University, Department of Economics.
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    12. Rosendahl, Knut Einar, 2004. "Cost-effective environmental policy: implications of induced technological change," Journal of Environmental Economics and Management, Elsevier, vol. 48(3), pages 1099-1121, November.
    13. Gerlagh , Reyer & Kverndokk, Snorre & Rosendahl, Knut Einar, 2008. "Linking Environmental and Innovation Policy," Memorandum 10/2008, Oslo University, Department of Economics.
    14. Jaffe, Adam B. & Newell, Richard G. & Stavins, Robert N., 2005. "A tale of two market failures: Technology and environmental policy," Ecological Economics, Elsevier, vol. 54(2-3), pages 164-174, August.
    15. Hart, Rob, 2008. "The timing of taxes on CO2 emissions when technological change is endogenous," Journal of Environmental Economics and Management, Elsevier, vol. 55(2), pages 194-212, March.
    16. Xinshen Diao & Terry Roe & Erinç Yeldan, 1998. "Strategic Policies and Growth : An Applied Model of R&D-Driven Endogenous Growth," Departmental Working Papers 981, Bilkent University, Department of Economics.
    17. Vincent M. Otto & Andreas Löschel & John Reilly, 2006. "Directed Technical Change and Climate Policy," Working Papers 2006.81, Fondazione Eni Enrico Mattei.
    18. Goulder, Lawrence H. & Schneider, Stephen H., 1999. "Induced technological change and the attractiveness of CO2 abatement policies," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 211-253, August.
    19. Mads Greaker & Knut Einar Rosendahl, 2006. "Strategic Climate Policy in Small, Open Economies," Discussion Papers 448, Research Department of Statistics Norway.
    20. Parry, Ian W. H., 1995. "Optimal pollution taxes and endogenous technological progress," Resource and Energy Economics, Elsevier, vol. 17(1), pages 69-85, May.
    21. Kverndokk, Snorre & Rosendahl, Knut Einar, 2007. "Climate policies and learning by doing: Impacts and timing of technology subsidies," Resource and Energy Economics, Elsevier, vol. 29(1), pages 58-82, January.
    22. 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.
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    Cited by:
    1. Brita Bye & Karl Jacobsen, 2009. "On general versus emission saving R&D support," Discussion Papers 584, Research Department of Statistics Norway.
    2. Tom-Reiel Heggedal, 2008. "On R&D and the undersupply of emerging versus mature technologies," Discussion Papers 571, Research Department of Statistics Norway.

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