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International Emissions Trading and Induced Carbon-Saving Technological Change: Effects of Restricting the Trade in Carbon Rights

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  • Patrick Matschoss
  • Heinz Welsch

Abstract

This paper examines the implications of restricting the tradability of carbon rights in the presence of induced technological change. Unlike earlier approaches aimed at exploring the tradability-technology linkage, we focus on climate-relevant “carbon-saving” technological change. This is achieved by incorporating endogenous investment in carbon productivity into the RICE-99 integrated assessment model of Nordhaus and Boyer (2000). Simulation analysis of various emission reduction scenarios with several restrictions on emissions trading reveals a pronounced dichotomy of effects across regions: Restrictions to trading raise the investments in carbon productivity in permit demanding regions while reducing them in permit supplying regions. In terms of per capita consumption, permit demanding regions lose and permit supplying regions gain from restrictions. In scenarios that involve “hot air,” restrictions to trade lower overall emissions, which results in reduced climate damage for most regions. Reduced damage, in turn, reduces the incentive to invest in carbon productivity. Copyright Springer 2006

Suggested Citation

  • Patrick Matschoss & Heinz Welsch, 2006. "International Emissions Trading and Induced Carbon-Saving Technological Change: Effects of Restricting the Trade in Carbon Rights," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 33(2), pages 169-198, February.
    • Handle: RePEc:kap:enreec:v:33:y:2006:i:2:p:169-198
    DOI: 10.1007/s10640-005-3105-3
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    References listed on IDEAS

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    1. Stavins, Robert & Jaffe, Adam & Newell, Richard, 2000. "Technological Change and the Environment," Working Paper Series rwp00-002, Harvard University, John F. Kennedy School of Government.
    2. Christoph Bohringer & Heinz Welsch, 2006. "Burden sharing in a greenhouse: egalitarianism and sovereignty reconciled," Applied Economics, Taylor & Francis Journals, vol. 38(9), pages 981-996.
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    Cited by:

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    2. Satoru Kasahara & Sergey Paltsev & John Reilly & Henry Jacoby & A. Ellerman, 2007. "Climate Change Taxes and Energy Efficiency in Japan," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 37(2), pages 377-410, June.
    3. Chu-Lun Hsieh & Wen-Hsien Tsai, 2023. "Towards Carbon Neutrality and Circular Economy in the Glass Industry by Using the Production Decision Model," Energies, MDPI, vol. 16(22), pages 1-18, November.
    4. Larson, Donald F. & Dinar, Ariel & Frisbie, J. Aapris, 2011. "Agriculture and the clean development mechanism," Policy Research Working Paper Series 5621, The World Bank.
    5. Alfred Endres, 2008. "Ein Unmöglichkeitstheorem für die Klimapolitik?," Perspektiven der Wirtschaftspolitik, Verein für Socialpolitik, vol. 9(3), pages 350-382, August.
    6. Mandaroux, Rahel & Schindelhauer, Kai & Basse Mama, Houdou, 2023. "How to reinforce the effectiveness of the EU emissions trading system in stimulating low-carbon technological change? Taking stock and future directions," Energy Policy, Elsevier, vol. 181(C).

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    More about this item

    Keywords

    carbon-saving technological progress; emissions trading; flexibility mechanism; induced technological change; integrated assessment model; Q25; Q43; O31; D58;
    All these keywords.

    JEL classification:

    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models

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