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Endogenous Technology and Tradable Emission Quotas

  • Michael Hoel

    (University of Oslo)

  • Rolf Golombek

    (Frisch Centre)

We study an international climate agreement that assigns emission quotas to each participating country. Unlike the simplest models in the literature, we assume that abatement costs are affected by R&D activities undertaken in all firms in all countries, i.e. abatement technologies are endogenous. In line with the Kyoto agreement we assume that the international climate agreement does not include R&D policies. We show that for a second-best agreement, marginal costs of abatement should exceed the Pigovian level. Moreover, marginal costs of abatement differ across countries in the second-best quota agreement with heterogeneous countries. In other words, the second-best outcome cannot be achieved if emission quotas are tradable.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2006.42.

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Date of creation: Mar 2006
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Handle: RePEc:fem:femwpa:2006.42
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  1. Spence, Michael, 1984. "Cost Reduction, Competition, and Industry Performance," Econometrica, Econometric Society, vol. 52(1), pages 101-21, January.
  2. Golombek, Rolf & Hoel, Michael, 2004. "Climate Agreements and Technology Policy," Memorandum 11/2004, Oslo University, Department of Economics.
  3. Barbara Buchner & Carlo Carraro, 2004. "Economic and environmental effectiveness of a technology-based climate protocol," Climate Policy, Taylor & Francis Journals, vol. 4(3), pages 229-248, September.
  4. Wolfgang Keller, 2000. "Geographic Localization of International Technology Diffusion," NBER Working Papers 7509, National Bureau of Economic Research, Inc.
  5. Xepapadeas, A., 1995. "Induced technical change and international agreements under greenhouse warming," Resource and Energy Economics, Elsevier, vol. 17(1), pages 1-23, May.
  6. Knut Einar Rosendahl, 2002. "Cost-effective environmental policy: Implications of induced technological change," Discussion Papers 314, Statistics Norway, Research Department.
  7. Golombek Rolf & Hoel Michael, 2006. "Second-Best Climate Agreements and Technology Policy," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 6(1), pages 1-30, January.
  8. Carlo Carraro & Carmen Marchiori, 2003. "Endogenous Strategic Issue Linkage in International Negotiations," Working Papers 2003.40, Fondazione Eni Enrico Mattei.
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