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Green Technology Policies versus Carbon Pricing: An Intergenerational Perspective

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  • Sebastian Rausch

    (ZEW Leibniz Centre for European Economic Research, Mannheim, Germany, Department of Economics, Heidelberg University, Germany, Centre for Energy Policy and Economics at ETH Zurich, Switzerland, and Joint Program on the Science and Policy of Global Change at Massachusetts Institute of Technology, Cambridge, USA)

  • Hidemichi Yonezawa

    (Division for Energy and Environmental Economics at the Research Department at Statistics Norway)

Abstract

Technology policy is the most widespread form of climate policy and is often preferred over seemingly efficient carbon pricing. We propose a new explanation for this observation: gains that predominantly accrue to households with large capital assets and that influence majority decisions in favor of technology policy. We study climate policy choices in an overlapping generations model with heterogeneous energy technologies and distortionary income taxation. Compared to carbon pricing, green technology policy leads to a pronounced capital subsidy effect that benefits most of the current generations but burdens future generations. Based on majority voting which disregards future generations, green technology policies are favored over a carbon tax. Smart “polluter-pays” financing of green technology policies enables obtaining the support of current generations while realizing efficiency gains for future generations.

Suggested Citation

  • Sebastian Rausch & Hidemichi Yonezawa, 2021. "Green Technology Policies versus Carbon Pricing: An Intergenerational Perspective," CER-ETH Economics working paper series 21/362, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  • Handle: RePEc:eth:wpswif:21-362
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    1. Green technology policies versus carbon pricing. An intergenerational perspective
      by Christian Zimmermann in NEP-DGE blog on 2021-11-22 19:22:32

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    More about this item

    Keywords

    Climate Policy; Green Technology Policy; Carbon Pricing; Overlapping Generations; Intergenerational Distribution; Social Welfare; General Equilibrium;
    All these keywords.

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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