Optimal CO2 Abatement in the Presence of Induced Technological Change
This paper explores the significance of policy-induced technological change for the design of carbon-abatement policies. We derive analytical expressions characterizing optimal CO2 abatement and carbon tax profiles under different specifications for the channels through which technological progress occurs. We consider both R&D-based and learning-by-doing-based knowledge accumulation, and examine each specification under both a cost-effectiveness and a benefit-cost policy criterion. We show analytically that the presence of induced technological change (ITC) implies a lower time profile of optimal carbon taxes. The impact of ITC on the optimal abatement path varies. When knowledge is gained through R&D investments, the presence of ITC justifies shifting some abatement from the present to the future. However, when knowledge is generated through learning-by-doing, the impact on the timing of abatement is analytically ambiguous. Illustrative numerical simulations indicate that the impact of ITC upon overall costs and optimal carbon taxes can be quite large in a cost-effectiveness setting but typically is much smaller under a benefit-cost policy criterion. The impact of ITC on the timing of abatement is very weak, and the effect (applicable in the benefit-cost case) on total abatement over time is generally small as well, especially when knowledge is accumulated via R&D.
|Date of creation:||Apr 1998|
|Date of revision:|
|Publication status:||published as REECON, Vol. 21, nos. 3-4 (August 1999): 211-253.|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
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.:
- Grubb, Michael, 1997. "Technologies, energy systems and the timing of CO2 emissions abatement : An overview of economic issues," Energy Policy, Elsevier, vol. 25(2), pages 159-172, February.
- Paul M Romer, 1999.
"Endogenous Technological Change,"
Levine's Working Paper Archive
2135, David K. Levine.
- Repetto, Robert, 1987. "The policy implications of non-convex environmental damages: A smog control case study," Journal of Environmental Economics and Management, Elsevier, vol. 14(1), pages 13-29, March.
- Farzin, Y. H., 1996. "Optimal pricing of environmental and natural resource use with stock externalities," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 31-57, October.
- Kolstad, Charles D., 1996. "Learning and Stock Effects in Environmental Regulation: The Case of Greenhouse Gas Emissions," Journal of Environmental Economics and Management, Elsevier, vol. 31(1), pages 1-18, July.
- 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.
- Alan Manne & Richard Richels, 1992. "Buying Greenhouse Insurance: The Economic Costs of CO2 Emission Limits," MIT Press Books, The MIT Press, edition 1, volume 1, number 026213280x, June.
- William D. Nordhaus, 1980. "Thinking About Carbon Dioxide: Theoretical and Empirical Aspects of Optimal Control Strategies," Cowles Foundation Discussion Papers 565, Cowles Foundation for Research in Economics, Yale University.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:6494. See general information about how to correct material in RePEc.
If references are entirely missing, you can add them using this form.