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Green Paradox and Directed Technical Change: The Effects of Subsidies to Clean R&D

  • Daubanes, Julien

    (CER-ETH)

  • Grimaud, André

    (TSE,IDEI,LERNA)

  • Rougé, Luc

    (TBS)

The "green paradox" literature points out that environmental policies which are anticipated to become gradually more stringent over time may induce a more rapid extraction of fossil fuels, thus having a detrimental effect to the environment. The manifestation of such phenomena has been extensively studied in the case of taxes directly applied to the extraction of a polluting non-renewable resource and of subsidies applied to its non-polluting substitutes. This paper examines the effects of subsidies to "clean" R&D activities, aimed to improve the productivity of non-polluting substitutes. We borrow standard assumptions from the directed-technical-change literature to take a full account of the private incentives to perform R&D and of the patterns of complementarity/substitutability between dirty resource and clean non-resource sectors. We show that a gradual increase in relative subsidies to clean R&D activities does not have the adverse green paradox effect, which contradicts an earlier made conjecture. Instead, the presence of several R&D sectors implies arbitrages which give rise to other quite paradoxical results. However substitutable or complementary sectors are, and whatever the induced technological bias is, clean-R&D-support policies always enhance the long-run productivity of the resource and thus result in a less rapid extraction.

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Paper provided by LERNA, University of Toulouse in its series LERNA Working Papers with number 12.20.377.

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Date of creation: Aug 2012
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Handle: RePEc:ler:wpaper:26536
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  17. Sinn, Hans-Werner, 2008. "Public policies against global warming: A supply side approach," Munich Reprints in Economics 19638, University of Munich, Department of Economics.
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