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Polluting Non-Renewable Resources, Carbon Abatement and Climate Policy in a Romer Growth Model

  • Grimaud, André
  • Magné, Bertrand
  • Rougé, Luc

We study how the availability of an abatement technology affects the optimal use of polluting exhaustible resources, and optimal climate policies. We develop a Romer endogenous growth model in which the accumulated stock of greenhouse gas emissions harms social welfare. Since the abatement technology allows reducing the effective pollution for each unit of resource use, extraction and pollution are partially disconnected. Abatement accelerates the optimal extraction pace, though it may foster CO2 emissions for the early generations. Moreover, it is detrimental to output growth. Next, we study the implementation of a unit tax on carbon emissions. Contrary to previous results of the literature, its level here matters, as it provides the right incentives to abatement effort. When it is measured internal good, the optimal (Pigovian) carbon tax is increasing over time, while it is constant when expressed in utility. Moreover, it can be interpreted ex-post as a decreasing ad-valorem tax on the resource. Finally, we study the impact of the climate policy on the decentralized equilibrium: in particular, it fosters both the intensity and the rate of carbon abatement. In the near-term, it spurs research and output growth, while decreasing output level.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 548.

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Date of creation: Mar 2009
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Handle: RePEc:ide:wpaper:11187
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  1. Charles I. Jones & John C. Williams, 1998. "Measuring The Social Return To R&D," The Quarterly Journal of Economics, MIT Press, vol. 113(4), pages 1119-1135, November.
  2. Poul Schou, 2000. "Polluting Non-Renewable Resources and Growth," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 16(2), pages 211-227, June.
  3. Raymond Gradus & Sjak Smulders, 1993. "The trade-off between environmental care and long-term growth—Pollution in three prototype growth models," Journal of Economics, Springer, vol. 58(1), pages 25-51, February.
  4. Ulph, Alistair & Ulph, David, 1994. "The Optimal Time Path of a Carbon Tax," Oxford Economic Papers, Oxford University Press, vol. 46(0), pages 857-68, Supplemen.
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  6. Gérard Gaudet, 2007. "Natural resource economics under the rule of Hotelling," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1033-1059, November.
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  8. Schou, Poul, 2002. " When Environmental Policy Is Superfluous: Growth and Polluting Resources," Scandinavian Journal of Economics, Wiley Blackwell, vol. 104(4), pages 605-20, December.
  9. Smulders, J.A. & Gradus, R.H.J.M., 1996. "Pollution abatement and long-term growth," Other publications TiSEM 1ed65010-f4ac-4a1f-84b6-4, Tilburg University, School of Economics and Management.
  10. Popp, David, 2004. "ENTICE: endogenous technological change in the DICE model of global warming," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 742-768, July.
  11. Grimaud, Andre & Rouge, Luc, 2003. "Non-renewable resources and growth with vertical innovations: optimum, equilibrium and economic policies," Journal of Environmental Economics and Management, Elsevier, vol. 45(2, Supple), pages 433-453, March.
  12. Reyer Gerlagh & Snorre Kverndokk & Knut Einar Rosendah, 2008. "Linking Environmental and Innovation Policy," Working Papers 2008.53, Fondazione Eni Enrico Mattei.
  13. Olli Tahvonen, 1997. "Fossil Fuels, Stock Externalities, and Backstop Technology," Canadian Journal of Economics, Canadian Economics Association, vol. 30(4), pages 855-74, November.
  14. Grimaud, Andre & Rouge, Luc, 2005. "Polluting non-renewable resources, innovation and growth: welfare and environmental policy," Resource and Energy Economics, Elsevier, vol. 27(2), pages 109-129, June.
  15. Kenneth Stollery, 1998. "Constant Utility Paths and Irreversible Global Warming," Canadian Journal of Economics, Canadian Economics Association, vol. 31(3), pages 730-742, August.
  16. Ricci, Francesco, 2007. "Channels of transmission of environmental policy to economic growth: A survey of the theory," Ecological Economics, Elsevier, vol. 60(4), pages 688-699, February.
  17. Reyer Gerlagh & Bob van der Zwaan, 2006. "Options and Instruments for a Deep Cut in CO2 Emissions: Carbon Dioxide Capture or Renewables, Taxes or Subsidies?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 25-48.
  18. Groth, Christian & Schou, Poul, 2007. "Growth and non-renewable resources: The different roles of capital and resource taxes," Journal of Environmental Economics and Management, Elsevier, vol. 53(1), pages 80-98, January.
  19. André Grimaud & Luc Rouge, 2005. "Polluting non-renewable resources, innovation and growth: welfare and environmental policy," Working Papers 21588, Institut National de la Recherche Agronomique, France.
  20. Francesco Ricci, 2007. "Channels of transmission of environmental policy to economic growth: a survey of the theory," Working Papers 17223, Institut National de la Recherche Agronomique, France.
  21. Snorre Kverndokk, 1994. "Depletion of Fossil Fuels and the impact of Global Warming," Discussion Papers 107, Research Department of Statistics Norway.
  22. Newell, Richard G. & Jaffe, Adam B. & Stavins, Robert N., 2006. "The effects of economic and policy incentives on carbon mitigation technologies," Energy Economics, Elsevier, vol. 28(5-6), pages 563-578, November.
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