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

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  • Heggedal, Tom-Reiel
  • Jacobsen, Karl

Abstract

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.

Suggested Citation

  • Heggedal, Tom-Reiel & Jacobsen, Karl, 2011. "Timing of innovation policies when carbon emissions are restricted: An applied general equilibrium analysis," Resource and Energy Economics, Elsevier, vol. 33(4), pages 913-937.
  • Handle: RePEc:eee:resene:v:33:y:2011:i:4:p:913-937
    DOI: 10.1016/j.reseneeco.2010.12.002
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    Cited by:

    1. Reichenbach, Johanna & Requate, Till, 2012. "Subsidies for renewable energies in the presence of learning effects and market power," Resource and Energy Economics, Elsevier, vol. 34(2), pages 236-254.
    2. Gerlagh, Reyer & Kverndokk, Snorre & Rosendahl, Knut Einar, 2014. "The optimal time path of clean energy R&D policy when patents have finite lifetime," Journal of Environmental Economics and Management, Elsevier, vol. 67(1), pages 2-19.
    3. Lucas Bretschger & Lin Zhang, 2014. "Going beyond tradition: Carbon policy in a high-growth economy: The case of China," CER-ETH Economics working paper series 14/201, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    4. Geir H. Bjertnæs & Tom-Reiel Heggedal & Karl Jacobsen, 2009. "Knowledge spillovers and the timing of R&D policy," DEGIT Conference Papers c014_042, DEGIT, Dynamics, Economic Growth, and International Trade.
    5. Bretschger, Lucas & Zhang, Lin, 2017. "Carbon policy in a high-growth economy: The case of China," Resource and Energy Economics, Elsevier, vol. 47(C), pages 1-19.
    6. Bretschger, Lucas & Ramer, Roger & Schwark, Florentine, 2011. "Growth effects of carbon policies: Applying a fully dynamic CGE model with heterogeneous capital," Resource and Energy Economics, Elsevier, vol. 33(4), pages 963-980.
    7. Lucas Bretschger & Roger Ramer, 2012. "Sectoral Growth Effects of Energy Policies in an Increasing-Varieties Model of the Swiss Economy," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 148(II), pages 137-166, June.

    More about this item

    Keywords

    Applied general equilibrium; Carbon emissions; Endogenous growth; Research and development;

    JEL classification:

    • E17 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Forecasting and Simulation: Models and Applications
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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