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Permit Markets, Carbon Prices and the Creation of Innovation Clusters

Author

Listed:
  • Hans Gersbach

    (ETH Zurich, Switzerland)

  • Marie-Catherine Riekhof

    (ETH Zurich, Switzerland)

Abstract

Innovation clusters combining public and private effort to develop breakthrough technologies promise greater technological advances to slow down climate change. We use a multi-country model with emissions permit trade to examine how international climate policy can incentivize countries to create such clusters. We find that a minimal carbon price is needed to attract applied research firms, but countries may nevertheless fail to invest in complementary research infrastructure. We construct a mechanism that leads to innovation clusters. It is a combination of low permit endowments for the country with the lowest costs to build the needed infrastructure, compensation for this country by profits from permit trade, and maximal possible permit endowments for the remaining countries.

Suggested Citation

  • Hans Gersbach & Marie-Catherine Riekhof, 2018. "Permit Markets, Carbon Prices and the Creation of Innovation Clusters," CER-ETH Economics working paper series 18/303, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:18-303
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    Cited by:

    1. Gersbach, Hans & Riekhof, Marie-Catherine, 2021. "Permit markets, carbon prices and the creation of innovation clusters," Resource and Energy Economics, Elsevier, vol. 65(C).
    2. 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).
    3. Ma, Guangcheng & Yang, Yang, 2025. "Can China’s carbon market policy promote inter-city green collaborative innovation?," Energy Economics, Elsevier, vol. 144(C).

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    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D

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