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A note on environmental policy and innovation when governments cannot commit

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  • Montero, Juan Pablo

Abstract

It is widely accepted that one of the most important characteristics of an effective pollution control policy is to provide firms with credible incentives to make long-run investments in R&D that can drastically reduce pollution. Recognizing that a government may be tempted to revise its policy design after innovations become available, this note shows how the performance of two policy instruments—prices (uniform taxes) and quantities (tradeable pollution permits)—differ in such a setting. I also discuss the gains from combining either instrument with subsidies to adopting firms.

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  • Montero, Juan Pablo, 2011. "A note on environmental policy and innovation when governments cannot commit," Energy Economics, Elsevier, vol. 33(S1), pages 13-19.
    • Handle: RePEc:eee:eneeco:v:33:y:2011:i:s1:p:s13-s19
    DOI: 10.1016/j.eneco.2011.07.022
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    Cited by:

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    3. Wirl, Franz, 2014. "Taxes versus permits as incentive for the intertemporal supply of a clean technology by a monopoly," Resource and Energy Economics, Elsevier, vol. 36(1), pages 248-269.
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    5. Soo Keong Yong & Lana Friesen & Stuart McDonald, 2018. "Emission Taxes, Clean Technology Cooperation, And Product Market Collusion: Experimental Evidence," Economic Inquiry, Western Economic Association International, vol. 56(4), pages 1950-1979, October.
    6. Rob Aalbers & Victoria Shestalova & Viktoria Kocsis, 2012. "Innovation policy for directing technical change in the power sector," CPB Discussion Paper 223, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Alistair Ulph & David Ulph, 2013. "Optimal Climate Change Policies When Governments Cannot Commit," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 56(2), pages 161-176, October.
    8. García, Arturo & Leal, Mariel & Lee, Sang-Ho, 2018. "Time-inconsistent environmental policies with a consumer-friendly firm: Tradable permits versus emission tax," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 523-537.
    9. Larry Karp & Sauleh Siddiqui & Jon Strand, 2016. "Dynamic Climate Policy with Both Strategic and Non-strategic Agents: Taxes Versus Quantities," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(1), pages 135-158, September.
    10. Wirl, Franz, 2012. "Global warming: Prices versus quantities from a strategic point of view," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 217-229.
    11. Aalbers, Rob & Shestalova, Victoria & Kocsis, Viktória, 2013. "Innovation policy for directing technical change in the power sector," Energy Policy, Elsevier, vol. 63(C), pages 1240-1250.
    12. Moner-Colonques Rafael & Rubio Santiago J., 2016. "The Strategic Use of Innovation to Influence Environmental Policy: Taxes versus Standards," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 973-1000, April.
    13. Clancy, Matthew & Moschini, GianCarlo, 2016. "Pushing and Pulling Environmental Innovation: R&D Subsidies and Carbon Taxes," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235710, Agricultural and Applied Economics Association.
    14. Soo Keong Yong & Stuart McDonald, 2018. "Emissions tax and second-mover advantage in clean technology R&D," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 20(1), pages 89-108, January.
    15. Kellogg, Ryan, 2018. "Gasoline price uncertainty and the design of fuel economy standards," Journal of Public Economics, Elsevier, vol. 160(C), pages 14-32.
    16. Idrissa Sibailly, 2013. "On licensing and diffusion of clean technologies in oligopoly," Working Papers hal-00911453, HAL.
    17. Jean-Philippe Nicolaï, 2015. "Environmental regulation with and without commitment under irreversible investments," Working Papers 2015.19, FAERE - French Association of Environmental and Resource Economists.
    18. Golombek, Rolf & Greaker, Mads & Hoel, Michael, 2020. "Should environmental R&D be prioritized?," Resource and Energy Economics, Elsevier, vol. 60(C).
    19. Yinjie Zhang & Chunxiang Guo & Liangcheng Wang, 2020. "Supply Chain Strategy Analysis of Low Carbon Subsidy Policies Based on Carbon Trading," Sustainability, MDPI, vol. 12(9), pages 1-20, April.
    20. Mathias Berthod, 2020. "Commitment and efficiency-inducing tax and subsidy scheme in the development of a clean technology," Working Papers hal-02489971, HAL.
    21. Chiappinelli, Olga & May, Nils, 2022. "Too good to be true? Time-inconsistent renewable energy policies," Energy Economics, Elsevier, vol. 112(C).
    22. Marie-Laure Cabon-Dhersin & Natacha Raffin, 2023. "Cooperation in Green R&D and Environmental Policies: Taxes or Standards," Working Papers hal-03610541, HAL.
    23. Mathias Berthod, 2020. "Commitment and efficiency-inducing tax and subsidy scheme in the development of a clean technology," CEE-M Working Papers hal-02489971, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    24. Taran Faehn and Elisabeth T. Isaksen, 2016. "Diffusion of Climate Technologies in the Presence of Commitment Problems," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    25. Weiling Wang & Yongjian Wang & Xiaoqing Zhang & Dalin Zhang, 2021. "Effects of Government Subsidies on Production and Emissions Reduction Decisions under Carbon Tax Regulation and Consumer Low-Carbon Awareness," IJERPH, MDPI, vol. 18(20), pages 1-17, October.

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    More about this item

    Keywords

    Innovation; Pollution; Commitment;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L90 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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