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End of the line: A Note on Environmental Policy and Innovation when Governments cannot Commit

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  • Juan-Pablo Montero

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

It is widely accepted that one of the most important characteristics of an effective climate policy is to provide firms with credible incentives to make long-run investments in R&D that can drastically reduce emissions. Recognizing that a government may be tempted to revise its policy design after innovations become available, this note shows how the performance of two policy instruments –prices (uniform taxes) and quantities (tradeable pollution permits)– differ in such a setting.I also discuss the gains from combining either instrument with subsidies to adopting firms.

Suggested Citation

  • Juan-Pablo Montero, 2011. "End of the line: A Note on Environmental Policy and Innovation when Governments cannot Commit," Documentos de Trabajo 394, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:394
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    File URL: https://www.economia.uc.cl/docs/doctra/dt-394.pdf
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    References listed on IDEAS

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    1. Carrión-Flores, Carmen E. & Innes, Robert, 2010. "Environmental innovation and environmental performance," Journal of Environmental Economics and Management, Elsevier, vol. 59(1), pages 27-42, January.
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    Cited by:

    1. Mathias Berthod, 2020. "Commitment and efficiency-inducing tax and subsidy scheme in the development of a clean technology," Working Papers hal-02489971, HAL.
    2. Rob Aalbers & Victoria Shestalova & Viktoria Kocsis, 2012. "Innovation policy for directing technical change in the power sector," CPB Discussion Paper 223, CPB Netherlands Bureau for Economic Policy Analysis.
    3. Alistair Ulph & David Ulph, 2013. "Optimal Climate Change Policies When Governments Cannot Commit," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 56(2), pages 161-176, October.
    4. García, Arturo & Leal, Mariel & Lee, Sang-Ho, 2018. "Time-inconsistent environmental policies with a consumer-friendly firm: Tradable permits versus emission tax," International Review of Economics & Finance, Elsevier, vol. 58(C), pages 523-537.
    5. Larry Karp & Sauleh Siddiqui & Jon Strand, 2016. "Dynamic Climate Policy with Both Strategic and Non-strategic Agents: Taxes Versus Quantities," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 65(1), pages 135-158, September.
    6. Chiappinelli, Olga & May, Nils, 2022. "Too good to be true? Time-inconsistent renewable energy policies," Energy Economics, Elsevier, vol. 112(C).
    7. Marie-Laure Cabon-Dhersin & Natacha Raffin, 2023. "Cooperation in Green R&D and Environmental Policies: Taxes or Standards," Working Papers hal-03610541, HAL.
    8. Wirl, Franz, 2012. "Global warming: Prices versus quantities from a strategic point of view," Journal of Environmental Economics and Management, Elsevier, vol. 64(2), pages 217-229.
    9. Golombek, Rolf & Greaker, Mads & Hoel, Michael, 2020. "Should environmental R&D be prioritized?," Resource and Energy Economics, Elsevier, vol. 60(C).
    10. Aalbers, Rob & Shestalova, Victoria & Kocsis, Viktória, 2013. "Innovation policy for directing technical change in the power sector," Energy Policy, Elsevier, vol. 63(C), pages 1240-1250.
    11. Moner-Colonques Rafael & Rubio Santiago J., 2016. "The Strategic Use of Innovation to Influence Environmental Policy: Taxes versus Standards," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 16(2), pages 973-1000, April.
    12. Kai Ou & Yu Shi & Wenwen Zhou, 2024. "An Evolutionary Game Study on Green Technology Innovation of Coal Power Firms under the Dual-Regulatory System," Energies, MDPI, vol. 17(3), pages 1, January.
    13. Clancy, Matthew & Moschini, GianCarlo, 2016. "Pushing and Pulling Environmental Innovation: R&D Subsidies and Carbon Taxes," 2016 Annual Meeting, July 31-August 2, Boston, Massachusetts 235710, Agricultural and Applied Economics Association.
    14. Soo Keong Yong & Stuart McDonald, 2018. "Emissions tax and second-mover advantage in clean technology R&D," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 20(1), pages 89-108, January.
    15. Mathias Berthod, 2020. "Commitment and efficiency-inducing tax and subsidy scheme in the development of a clean technology," CEE-M Working Papers hal-02489971, CEE-M, Universtiy of Montpellier, CNRS, INRA, Montpellier SupAgro.
    16. Kellogg, Ryan, 2018. "Gasoline price uncertainty and the design of fuel economy standards," Journal of Public Economics, Elsevier, vol. 160(C), pages 14-32.
    17. Wirl, Franz, 2014. "Taxes versus permits as incentive for the intertemporal supply of a clean technology by a monopoly," Resource and Energy Economics, Elsevier, vol. 36(1), pages 248-269.
    18. David Tobón Orozco & Carlos Andrés Vasco Correa, 2011. "Un modelo de equilibrio general con externalidades y capital natural," Libros del Grupo Microeconomía Aplicada, Universidad de Antioquia, Departamento de Economía, edition 1, number 01, June.
    19. Idrissa Sibailly, 2013. "On licensing and diffusion of clean technologies in oligopoly," Working Papers hal-00911453, HAL.
    20. Taran Faehn and Elisabeth T. Isaksen, 2016. "Diffusion of Climate Technologies in the Presence of Commitment Problems," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2).
    21. Yinjie Zhang & Chunxiang Guo & Liangcheng Wang, 2020. "Supply Chain Strategy Analysis of Low Carbon Subsidy Policies Based on Carbon Trading," Sustainability, MDPI, vol. 12(9), pages 1-20, April.
    22. Soo Keong Yong & Lana Friesen & Stuart McDonald, 2018. "Emission Taxes, Clean Technology Cooperation, And Product Market Collusion: Experimental Evidence," Economic Inquiry, Western Economic Association International, vol. 56(4), pages 1950-1979, October.
    23. Weiling Wang & Yongjian Wang & Xiaoqing Zhang & Dalin Zhang, 2021. "Effects of Government Subsidies on Production and Emissions Reduction Decisions under Carbon Tax Regulation and Consumer Low-Carbon Awareness," IJERPH, MDPI, vol. 18(20), pages 1-17, October.
    24. Jean-Philippe Nicolaï, 2015. "Environmental regulation with and without commitment under irreversible investments," Working Papers 2015.19, FAERE - French Association of Environmental and Resource Economists.

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    More about this item

    Keywords

    Pollution control; innovation; commitment;
    All these keywords.

    JEL classification:

    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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