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Innovation and Climate Change Policy

  • Joshua S. Gans

This paper examines whether climate change policies will induce innovation in environmentally friendly technologies. The model demonstrates that a tighter emissions cap will reduce the scale of fossil fuel usage and that this will diminish incentives to improve fossil fuel efficiencies. In addition, such policies may stimulate the relative demand for innovations that improve the efficiency of alternative energy but carbon scarcity may diminish innovation incentives overall. Only for technologies that directly abate carbon pollution will there be an unambiguously positive impact on innovation. These results have implications for climate change targets and the design of climate change policy. (JEL O31, Q54, Q55, Q58)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/pol.4.4.125
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Article provided by American Economic Association in its journal American Economic Journal: Economic Policy.

Volume (Year): 4 (2012)
Issue (Month): 4 (November)
Pages: 125-45

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Handle: RePEc:aea:aejpol:v:4:y:2012:i:4:p:125-45
Note: DOI: 10.1257/pol.4.4.125
Contact details of provider: Web page: https://www.aeaweb.org/aej-policyEmail:


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  1. Smulders, Sjak & de Nooij, Michiel, 2003. "The impact of energy conservation on technology and economic growth," Resource and Energy Economics, Elsevier, vol. 25(1), pages 59-79, February.
  2. Arrow Kenneth J. & Cohen Linda & David Paul A. & Hahn Robert W. & Kolstad Charles D. & Lane Lee & Montgomery W. David & Nelson Richard R. & Noll Roger G. & Smith Anne E., 2009. "A Statement on the Appropriate Role for Research and Development in Climate Policy," The Economists' Voice, De Gruyter, vol. 6(1), pages 1-4, February.
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  8. 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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