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Policy implications of potential conflicts between short-term and long-term efficiency in CO2 emissions abatement

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  • del Ri­o González, Pablo

Abstract

This paper shows that, under certain conditions (including path dependence and lock-in), policies and measures leading to a cost-effective GHG emissions mitigation in the short term may not allow reaching long-term emissions targets at the lowest possible cost, that is, they might not be cost-effective in the long term. The reason is that, in a situation where currently expensive technologies have a large potential for cost reductions through learning effects and R&D investments, the implementation of incentive-based mitigation policies such as taxes or tradable permits will encourage the adoption and diffusion of currently low-cost abatement technologies, but might not be enough to make attractive the diffusion of expensive ones, which is a necessary condition for these technologies to realise their cost-reduction potential through the aforementioned effects. A simple model and a numerical simulation are provided to show this possible conflict between static and dynamic efficiency, which points out to the need to combine different instruments, some aiming at short-term cost-efficiency (such as incentive-based environmental policy) and others at encouraging dynamic cost reductions (such as technology/innovation policy).

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  • del Ri­o González, Pablo, 2008. "Policy implications of potential conflicts between short-term and long-term efficiency in CO2 emissions abatement," Ecological Economics, Elsevier, vol. 65(2), pages 292-303, April.
  • Handle: RePEc:eee:ecolec:v:65:y:2008:i:2:p:292-303
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    1. Unruh, Gregory C., 2002. "Escaping carbon lock-in," Energy Policy, Elsevier, vol. 30(4), pages 317-325, March.
    2. Rennings, Klaus, 2000. "Redefining innovation -- eco-innovation research and the contribution from ecological economics," Ecological Economics, Elsevier, vol. 32(2), pages 319-332, February.
    3. Sartorius, Christian, 2006. "Second-order sustainability--conditions for the development of sustainable innovations in a dynamic environment," Ecological Economics, Elsevier, vol. 58(2), pages 268-286, June.
    4. 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.
    5. ., 1998. "Technological Change," Chapters,in: The Elgar Companion to Classical Economics, chapter 127 Edward Elgar Publishing.
    6. Requate, Till, 2005. "Dynamic incentives by environmental policy instruments--a survey," Ecological Economics, Elsevier, vol. 54(2-3), pages 175-195, August.
    7. Unruh, Gregory C., 2000. "Understanding carbon lock-in," Energy Policy, Elsevier, vol. 28(12), pages 817-830, October.
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    Cited by:

    1. Giovanni Marin & Massimiliano Mazzanti, 2009. "The dynamics of delinking in industrial emissions: The role of productivity, trade and R&D," Journal of Innovation Economics, De Boeck Université, vol. 0(1), pages 91-117.
    2. Lambie, Neil Ross, 2010. "Understanding the effect of an emissions trading scheme on electricity generator investment and retirement behaviour: the proposed Carbon Pollution Reduction Scheme," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 54(2), June.
    3. Vogt-Schilb, Adrien & Hallegatte, Stéphane, 2014. "Marginal abatement cost curves and the optimal timing of mitigation measures," Energy Policy, Elsevier, vol. 66(C), pages 645-653.
    4. Wächter, Petra, 2013. "The usefulness of marginal CO2-e abatement cost curves in Austria," Energy Policy, Elsevier, vol. 61(C), pages 1116-1126.
    5. Dutz, Mark A. & Sharma, Siddharth, 2012. "Green growth, technology and innovation," Policy Research Working Paper Series 5932, The World Bank.
    6. Martin Faulstich & Michael Weber & Christian Hey & Matthias Herms, 2011. "Optionen für eine nachhaltige Energieversorgung," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(18), pages 05-13, October.
    7. Sterner, Thomas & Turnheim, Bruno, 2009. "Innovation and diffusion of environmental technology: Industrial NOx abatement in Sweden under refunded emission payments," Ecological Economics, Elsevier, vol. 68(12), pages 2996-3006, October.
    8. Wolfgang Buchholz & Johannes Pfeiffer, 2011. "Energiepolitische Implikationen einer Energiewende," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 64(18), pages 30-39, October.

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