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Timing of innovation policies when carbon emissions are restricted: An applied general equilibrium analysis

  • Heggedal, Tom-Reiel
  • Jacobsen, Karl
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    This paper studies the timing of subsidies for emissions-saving research and development (R&D) and how innovation policy is influenced by a carbon tax. We develop a dynamic computable general equilibrium (CGE) model with both general R&D and specific emissions-saving R&D. We find two results that are important when subsidizing emissions-saving R&D in order to target inefficiencies in the research markets. First, the welfare gain from subsidies is larger when the carbon tax is high. This is because a high carbon tax raises the social value of the emissions-saving technology and that this increase in value is not fully appropriated by the private firms. Secondly, the welfare gain is greater when there is a falling time profile of the rate of subsidies for emissions-saving R&D, rather than a constant or increasing profile. The reason is that knowledge spillovers are larger in early periods.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0928765510000916
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    Article provided by Elsevier in its journal Resource and Energy Economics.

    Volume (Year): 33 (2011)
    Issue (Month): 4 ()
    Pages: 913-937

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    Handle: RePEc:eee:resene:v:33:y:2011:i:4:p:913-937
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505569

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