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Do technology externalities justify restrictions on emission permit trading?

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  • De Cian, Enrica
  • Tavoni, Massimo

Abstract

International emission trading is an important flexibility mechanism, but its use has been often restricted on the ground that access to international carbon credits can undermine the domestic abatement effort reducing the incentive to innovate and, eventually, lowering the pace of climate policy-induced technological change. This paper examines the economics that is behind these concerns by studying how a cap to the trade of carbon offsets influences innovation, technological change, and welfare. By using a standard game of abatement and R&D, we investigate the main mechanisms that shape these relationships. We also use a numerical integrated assessment model that features environmental and technology externalities to quantify how limits to the volume, the timing, and the regional allocation of carbon offsets affect climate policy costs and the incentive to invest in innovation and low-carbon technologies.

Suggested Citation

  • De Cian, Enrica & Tavoni, Massimo, 2012. "Do technology externalities justify restrictions on emission permit trading?," Resource and Energy Economics, Elsevier, vol. 34(4), pages 624-646.
  • Handle: RePEc:eee:resene:v:34:y:2012:i:4:p:624-646
    DOI: 10.1016/j.reseneeco.2012.05.009
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jin, Wei & Zhang, ZhongXiang, 2016. "On the mechanism of international technology diffusion for energy technological progress," Resource and Energy Economics, Elsevier, vol. 46(C), pages 39-61.
    2. Fabio Sferra & Massimo Tavoni, 2013. "Endogenous Participation in a Partial Climate Agreement with Open Entry: A Numerical Assessment," Working Papers 2013.60, Fondazione Eni Enrico Mattei.
    3. Jin, Wei, 2016. "International technology diffusion, multilateral R&D coordination, and global climate mitigation," Technological Forecasting and Social Change, Elsevier, vol. 102(C), pages 357-372.
    4. Enrica Cian & Samuel Carrara & Massimo Tavoni, 2014. "Innovation benefits from nuclear phase-out: can they compensate the costs?," Climatic Change, Springer, vol. 123(3), pages 637-650, April.
    5. Wei Jin, 2012. "International Knowledge Spillover and Technology Externality: Why Multilateral R&D Coordination Matters for Global Climate Governance," CAMA Working Papers 2012-53, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    6. Bento, Antonio M. & Kanbur, Ravi & Leard, Benjamin, 2015. "Designing efficient markets for carbon offsets with distributional constraints," Journal of Environmental Economics and Management, Elsevier, vol. 70(C), pages 51-71.

    More about this item

    Keywords

    Energy-economy modelling; Emission trading; Technology spillovers;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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