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

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  • Hart, Rob

Abstract

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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  • Hart, Rob, 2008. "The timing of taxes on CO2 emissions when technological change is endogenous," Journal of Environmental Economics and Management, Elsevier, vol. 55(2), pages 194-212, March.
    • Handle: RePEc:eee:jeeman:v:55:y:2008:i:2:p:194-212
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