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Endogenous technology and tradable emission quotas

  • Golombek, Rolf

    ()

    (The Ragnar Frisch Centre for Economic Research)

  • Hoel, Michael

    ()

    (Dept. of Economics, University of Oslo)

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 secondbest 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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File URL: http://www.sv.uio.no/econ/english/research/unpublished-works/working-papers/pdf-files/2006/Memo-03-2006.pdf
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Paper provided by Oslo University, Department of Economics in its series Memorandum with number 03/2006.

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Length: 16 pages
Date of creation: 17 Feb 2006
Date of revision:
Handle: RePEc:hhs:osloec:2006_003
Contact details of provider: Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
Phone: 22 85 51 27
Fax: 22 85 50 35
Web page: http://www.oekonomi.uio.no/indexe.html
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  1. Rosendahl, Knut Einar, 2004. "Cost-effective environmental policy: implications of induced technological change," Journal of Environmental Economics and Management, Elsevier, vol. 48(3), pages 1099-1121, November.
  2. Carlo Carraro & Barbara Buchner, 2006. "Economic and Environmental Effectiveness of a Technology-based Climate Protocol," Working Papers 2006_12, Department of Economics, University of Venice "Ca' Foscari".
  3. Wolfgang Keller, 2000. "Geographic Localization of International Technology Diffusion," NBER Working Papers 7509, National Bureau of Economic Research, Inc.
  4. Michael Hoel & Rolf Golombek, 2004. "Climate Agreements and Technology Policy," Working Papers 2004.90, Fondazione Eni Enrico Mattei.
  5. Spence, Michael, 1984. "Cost Reduction, Competition, and Industry Performance," Econometrica, Econometric Society, vol. 52(1), pages 101-21, January.
  6. 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.
  7. Carlo Carraro & Carmen Marchiori, 2003. "Endogenous Strategic Issue Linkage in International Negotiations," Working Papers 2003.40, Fondazione Eni Enrico Mattei.
  8. Xepapadeas, A., 1995. "Induced technical change and international agreements under greenhouse warming," Resource and Energy Economics, Elsevier, vol. 17(1), pages 1-23, May.
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