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

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Author Info
Tom-Reiel Heggedal and Karl Jacobsen () (Statistics Norway)
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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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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Related research
Keywords: Applied general equilibrium; endogenous growth; research and development; carbon emissions.;

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Find related papers by JEL classification:
E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
O38 - Economic Development, Technological Change, and Growth - - Technological Change - - - Government Policy
Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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References listed on IDEAS
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  15. Fischer, Carolyn & Newell, Richard, 2004. "Environmental and Technology Policies for Climate Mitigation," Discussion Papers dp-04-05, Resources For the Future. [Downloadable!]
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  16. Norrbin, Stefan C, 1993. "The Relation between Price and Marginal Cost in U.S. Industry: A Contradiction," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 1149-64, December. [Downloadable!] (restricted)
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  17. 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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  18. 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. [Downloadable!] (restricted)
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Cited by:
(explanations, 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.)

  1. Tom-Reiel Heggedal, 2008. "On R&D and the undersupply of emerging versus mature technologies," Discussion Papers 571, Research Department of Statistics Norway. [Downloadable!]
  2. Brita Bye and Karl Jacobsen, 2009. "On general versus emission saving R&D support," Discussion Papers 584, Research Department of Statistics Norway. [Downloadable!]
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