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Environmental Policy and Incentives to Invest in Advanced Abatement Technology if Arrival of Future Technology is Uncertain - Extended Version

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  • von Döllen, Andreas
  • Requate, Till

Abstract

We study long-term incentives for polluting and regulated firms to invest in advanced abatement technologies, when some new technology is available but an even better technology will be expected in the future. Firms can invest only once. We find that depending on the adoption fixed costs all possible combinations of investment patters can occur in social optimum. Further we show that if the regulator anticipates the arrival of the new technology he can decentralize socially optimal allocation by charging Pigouvian tax or issuing tradable permits through announcing his policy and setting ex post optimal policy levels, after firms have invested. --

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Bibliographic Info

Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2007,04.

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Date of creation: 2007
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Handle: RePEc:zbw:cauewp:5532

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Keywords: Emission taxes; tradable permits; option value theory; uncertainty; Poisson distribution;

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  1. Juan-Pablo Montero, 2002. "Market Structure and Environmental Innovation," Journal of Applied Economics, Universidad del CEMA, vol. 0, pages 293-325, November.
  2. Parry, Ian, 2001. "On the Implications of Technological Innovation for Environmental Policy," Discussion Papers, Resources For the Future dp-01-44, Resources For the Future.
  3. V. Denicolo, 1997. "Pollution-Reducing Innovations Under Taxes or Permits," Working Papers 281, Dipartimento Scienze Economiche, Universita' di Bologna.
  4. Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
  5. Till Requate, 1995. "Incentives to adopt new technologies under different pollution-control policies," International Tax and Public Finance, Springer, Springer, vol. 2(2), pages 295-317, August.
  6. Parry, Ian W. H., 1995. "Optimal pollution taxes and endogenous technological progress," Resource and Energy Economics, Elsevier, Elsevier, vol. 17(1), pages 69-85, May.
  7. Parry, Ian W H, 1998. "Pollution Regulation and the Efficiency Gains from Technological Innovation," Journal of Regulatory Economics, Springer, Springer, vol. 14(3), pages 229-54, November.
  8. Montero, Juan-Pablo, 2002. "Permits, Standards, and Technology Innovation," Journal of Environmental Economics and Management, Elsevier, vol. 44(1), pages 23-44, July.
  9. Till Requate & Wolfram Uunold, 2001. "On the Incentives Created by Policy Instruments to Adopt Advanced Abatement Technology if Firms are Asymmetric," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 157(4), pages 536-, December.
  10. Requate, Till & Unold, Wolfram, 2003. "Environmental policy incentives to adopt advanced abatement technology:: Will the true ranking please stand up?," European Economic Review, Elsevier, Elsevier, vol. 47(1), pages 125-146, February.
  11. Kennedy, Peter W. & Laplante, Benoit, 2000. "Environmental policy and time consistency - emissions taxes and emissions trading," Policy Research Working Paper Series 2351, The World Bank.
  12. Revesz, Richard L. & Stavins, Robert N., 2007. "Environmental Law," Handbook of Law and Economics, Elsevier, Elsevier.
  13. 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.
  14. Till Requate, 2005. "Timing and Commitment of Environmental Policy, Adoption of New Technology, and Repercussions on R&D," Environmental & Resource Economics, European Association of Environmental and Resource Economists, European Association of Environmental and Resource Economists, vol. 31(2), pages 175-199, 06.
  15. Malueg, David A., 1989. "Emission credit trading and the incentive to adopt new pollution abatement technology," Journal of Environmental Economics and Management, Elsevier, vol. 16(1), pages 52-57, January.
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