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Climate Policies and Induced Technological Change: Which to Choose, the Carrot or the Stick?

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  • Snorre Kverndokk
  • Knut Rosendahl
  • Thomas Rutherford

Abstract

Policies to reduce emissions of greenhousegases such as CO 2 , will affect the rate andpattern of technological change in alternativeenergy supply and other production processes.Imperfections in markets for non-pollutingtechnologies imply that a decentralised economydoes not deliver a socially optimal outcome,and this could justify policy interventionssuch as subsidies. This paper considers thewelfare effects of technology subsidies as partof a carbon abatement policy package. We arguethat the presence of spillovers in alternativeenergy technologies does not necessarily implythat subsidy policies are welfare improving. Weillustrate this point in the context of ageneral equilibrium model with two forms ofcarbon-free energy, an existing “alternative energy” which is a substitute for carbon-basedfuels, and “new vintage energy” which providesa carbon-free replacement for existing energyservices. Subsidisation of alternative energyon the grounds of spillover effects can bewelfare-worsening if it crowds-out new vintagetechnologies. Copyright Kluwer Academic Publishers 2004

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  • Snorre Kverndokk & Knut Rosendahl & Thomas Rutherford, 2004. "Climate Policies and Induced Technological Change: Which to Choose, the Carrot or the Stick?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 27(1), pages 21-41, January.
  • Handle: RePEc:kap:enreec:v:27:y:2004:i:1:p:21-41
    DOI: 10.1023/B:EARE.0000016787.53575.39
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    2. Zylicz, Tomasz, 2010. "Goals and Principles of Environmental Policy," International Review of Environmental and Resource Economics, now publishers, vol. 3(4), pages 299-334, May.
    3. Peterson, Sonja, 2005. "Technischer Fortschritt im DART-Modell," Open Access Publications from Kiel Institute for the World Economy 3806, Kiel Institute for the World Economy (IfW).
    4. Kalkuhl, Matthias & Edenhofer, Ottmar & Lessmann, Kai, 2012. "Learning or lock-in: Optimal technology policies to support mitigation," Resource and Energy Economics, Elsevier, vol. 34(1), pages 1-23.
    5. Kverndokk, Snorre & Rosendahl, Knut Einar, 2007. "Climate policies and learning by doing: Impacts and timing of technology subsidies," Resource and Energy Economics, Elsevier, vol. 29(1), pages 58-82, January.
    6. Lehmann, Paul & Gawel, Erik, 2013. "Why should support schemes for renewable electricity complement the EU emissions trading scheme?," Energy Policy, Elsevier, vol. 52(C), pages 597-607.
    7. Loschel, Andreas, 2002. "Technological change in economic models of environmental policy: a survey," Ecological Economics, Elsevier, vol. 43(2-3), pages 105-126, December.
    8. Johannes Urpelainen, 2012. "Technology investment, bargaining, and international environmental agreements," International Environmental Agreements: Politics, Law and Economics, Springer, vol. 12(2), pages 145-163, May.
    9. Otto, Vincent M. & Reilly, John, 2008. "Directed technical change and the adoption of CO2 abatement technology: The case of CO2 capture and storage," Energy Economics, Elsevier, vol. 30(6), pages 2879-2898, November.
    10. David Popp, 2004. "R&D Subsidies and Climate Policy: Is There a "Free Lunch"?," NBER Working Papers 10880, National Bureau of Economic Research, Inc.
    11. Paul Lehmann & Patrik Söderholm, 2018. "Can Technology-Specific Deployment Policies Be Cost-Effective? The Case of Renewable Energy Support Schemes," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 71(2), pages 475-505, October.
    12. Dechezlepretre, Antoine & Martin, Ralf & Mohnen, Myra, 2014. "Knowledge spillovers from clean and dirty technologies," LSE Research Online Documents on Economics 60501, London School of Economics and Political Science, LSE Library.
    13. Johannes Urpelainen, 2010. "Enforcing international environmental cooperation: Technological standards can help," The Review of International Organizations, Springer, vol. 5(4), pages 475-496, December.
    14. Reyer Gerlagh & Snorre Kverndokk & Knut Rosendahl, 2009. "Optimal Timing of Climate Change Policy: Interaction Between Carbon Taxes and Innovation Externalities," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 43(3), pages 369-390, July.
    15. Kverndokk, Snorre & Rosendahl, Knut Einar & Rutherford, Thomas F., 2004. "Climate policies and induced technological change: Impacts and timing of technology subsidies," Memorandum 05/2004, Oslo University, Department of Economics.
    16. Yang, Dong-xiao & Chen, Zi-yue & Nie, Pu-yan, 2016. "Output subsidy of renewable energy power industry under asymmetric information," Energy, Elsevier, vol. 117(P1), pages 291-299.
    17. Prasenjit Banerjee & Jason F. Shogren, 2013. "Climate Change: Risk, Reputation, and Mechanism Design," Economics Discussion Paper Series 1303, Economics, The University of Manchester.
    18. Bian, Junsong & Zhang, Guoqing & Zhou, Guanghui, 2020. "Manufacturer vs. Consumer Subsidy with Green Technology Investment and Environmental Concern," European Journal of Operational Research, Elsevier, vol. 287(3), pages 832-843.
    19. Weng, Yuwei & Cai, Wenjia & Wang, Can, 2021. "Evaluating the use of BECCS and afforestation under China’s carbon-neutral target for 2060," Applied Energy, Elsevier, vol. 299(C).
    20. Antweiler, Werner, 2017. "A two-part feed-in-tariff for intermittent electricity generation," Energy Economics, Elsevier, vol. 65(C), pages 458-470.
    21. Marisa Beck, Randall Wigle, 2014. "Carbon Revenue: Recycling versus Technological Incentives," LCERPA Working Papers 0079, Laurier Centre for Economic Research and Policy Analysis, revised 13 Jan 2014.
    22. Runa Sarkar, 2008. "Public policy and corporate environmental behaviour: a broader view," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 15(5), pages 281-297, September.
    23. Beck, Marisa & Rivers, Nicholas & Wigle, Randall, 2018. "How do learning externalities influence the evaluation of Ontario's renewables support policies?," Energy Policy, Elsevier, vol. 117(C), pages 86-99.

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