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The timing of taxes on CO2 emissions when technological change is endogenous

  • Hart, Rob
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How do technology spillovers affect the relationship between emissions taxes and technological change? Without spillovers, a regulator applies Pigovian taxes which lead to a first-best optimum (optimal emissions and optimal technology investment). Given spillovers, Pigovian taxes are likely to be second-best optimal if emissions-saving technology and production technology are equally undersupplied; raising taxes above the Pigovian level boosts emissions-saving investment, but only at the expense of production investment. The technologies are equally undersupplied when there is a degree of symmetry between the sectors, and the economy is on a balanced growth path. On a transition path with rising atmospheric stocks and a high level of investment in emissions-saving technology, a regulator may raise carbon taxes above the Pigovian level in order to encourage investment in emissions-saving technology at the expense of production technology. I show this using both analytical and numerical results.

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Article provided by Elsevier in its journal Journal of Environmental Economics and Management.

Volume (Year): 55 (2008)
Issue (Month): 2 (March)
Pages: 194-212

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Handle: RePEc:eee:jeeman:v:55:y:2008:i:2:p:194-212
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622870

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