Climate policy and innovation in the absence of commitment
It is well-recognized that new technology is a crucial part of any solution to the problem of climate change. But since investments in research and development take time to mature, price and quantity instruments, i.e., carbon taxes and cap-and-trade, run into a commitment problem. We assume that the government cannot commit to the level of a policy instrument in advance, but sets the level to be optimal ex-post. Under these assumptions, we show that when the supply curve of dirty (emission-producing) energy is flat, then an emissions tax is ineffective in promoting R & D into green (emission-free) energy while an emissions quota (i.e., cap and trade) can be effective. A subsidy to R & D is welfare-reducing. More realistically, when the supply curve of dirty energy is upward-sloping, then both tax and quota regimes can be effective in promoting R & D into emission-free technology. In this case, a tax generally induces more R & D than a quota. When the supply curve is sufficiently steep compared to the demand curve, a subsidy to R & D can expand the range of parameter values under which R & D occurs and this can be welfare-improving. If there is sufficient uncertainty about whether a climate policy will be adopted ex-post, then subsidizing R & D is an even more attractive policy option since a welfare-improving subsidy to R & D exists under a wider range of circumstances.
|Date of creation:||Dec 2010|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.isid.ac.in/~pu/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Fischer, Carolyn & Parry, Ian W. H. & Pizer, William A., 2003.
"Instrument choice for environmental protection when technological innovation is endogenous,"
Journal of Environmental Economics and Management,
Elsevier, vol. 45(3), pages 523-545, May.
- Parry, Ian & Pizer, William & Fischer, Carolyn, 1998. "Instrument Choice for Environmental Protection When Technological Innovation is Endogenous," Discussion Papers dp-99-04, Resources For the Future.
- Jung, Chulho & Krutilla, Kerry & Boyd, Roy, 1996. "Incentives for Advanced Pollution Abatement Technology at the Industry Level: An Evaluation of Policy Alternatives," Journal of Environmental Economics and Management, Elsevier, vol. 30(1), pages 95-111, January.
- Charles D. Kolstad, 2010.
"Regulatory Choice with Pollution and Innovation,"
NBER Working Papers
16303, National Bureau of Economic Research, Inc.
- Requate, Till, 2005. "Dynamic incentives by environmental policy instruments--a survey," Ecological Economics, Elsevier, vol. 54(2-3), pages 175-195, August.
- V. Denicolo, 1997.
"Pollution-Reducing Innovations Under Taxes or Permits,"
281, Dipartimento Scienze Economiche, Universita' di Bologna.
- Denicolo, Vincenzo, 1999. "Pollution-Reducing Innovations under Taxes or Permits," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 184-99, January.
- Milliman, Scott R. & Prince, Raymond, 1989. "Firm incentives to promote technological change in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 17(3), pages 247-265, November.
- Acemoglu, Daron & Aghion, Philippe & Bursztyn, Leonardo & Hemous, David, 2011.
"The Environment and Directed Technical Change,"
CEPR Discussion Papers
8660, C.E.P.R. Discussion Papers.
- Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2009. "The Environment and Directed Technical Change," NBER Working Papers 15451, National Bureau of Economic Research, Inc.
- Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2010. "The Environment and Directed Technical Change," Working Papers 2010.93, Fondazione Eni Enrico Mattei.
- Acemoglu, Daron & Aghion, Philippe & Bursztyn, Leonardo & Hemous, David, 2010. "The Environment and Directed Technical Change," Seminar Papers 762, Stockholm University, Institute for International Economic Studies.
- Marin, A., 1978. "The choice of efficient pollution policies: Technology and economics in the control of sulphur dioxide," Journal of Environmental Economics and Management, Elsevier, vol. 5(1), pages 44-62, March.
- Downing, Paul B. & White, Lawrence J., 1986. "Innovation in pollution control," Journal of Environmental Economics and Management, Elsevier, vol. 13(1), pages 18-29, March.
When requesting a correction, please mention this item's handle: RePEc:ind:isipdp:10-09. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamprasad M. Pujar)
If references are entirely missing, you can add them using this form.