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How Large Are the Welfare Gains from Technological Innovation Induced by Environmental Policies?

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  • Parry, Ian

    () (Resources for the Future)

  • Pizer, William

    () (Resources for the Future)

  • Fischer, Carolyn

    () (Resources for the Future)

Abstract

This paper examines whether the welfare gains from technological innovation that reduces future abatement costs are larger or smaller than the “Pigouvian” welfare gains from optimal pollution control. The relative welfare gains from innovation depend on three key factors: the initially optimal level of abatement, the speed at which innovation reduces future abatement costs, and the discount rate. We calculate the welfare gains from innovation under a variety of different scenarios. Mostly they are less than the Pigouvian welfare gains. To be greater, innovation must reduce abatement costs substantially and quickly and the initially optimal abatement level must be fairly modest.

Suggested Citation

  • Parry, Ian & Pizer, William & Fischer, Carolyn, 2002. "How Large Are the Welfare Gains from Technological Innovation Induced by Environmental Policies?," Discussion Papers dp-00-15-rev, Resources For the Future.
  • Handle: RePEc:rff:dpaper:dp-00-15-rev
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    References listed on IDEAS

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    Cited by:

    1. Barbara Buchner & Carlo Carraro, 2004. "Economic and environmental effectiveness of a technology-based climate protocol," Climate Policy, Taylor & Francis Journals, pages 229-248.
    2. repec:oup:renvpo:v:11:y:2017:i:2:p:183-206. is not listed on IDEAS
    3. Hart, Rob, 2008. "The timing of taxes on CO2 emissions when technological change is endogenous," Journal of Environmental Economics and Management, Elsevier, vol. 55(2), pages 194-212, March.
    4. repec:eee:eecrev:v:99:y:2017:i:c:p:151-169 is not listed on IDEAS
    5. Fischer, Carolyn, 2004. "Emissions Pricing, Spillovers, and Public Investment in Environmentally Friendly Technologies," Discussion Papers dp-04-02, Resources For the Future.
    6. Stefan Ambec & Mark A. Cohen & Stewart Elgie & Paul Lanoie, 2013. "The Porter Hypothesis at 20: Can Environmental Regulation Enhance Innovation and Competitiveness?," Review of Environmental Economics and Policy, Association of Environmental and Resource Economists, pages 2-22.
    7. Traber, Thure & Kemfert, Claudia, 2011. "Refunding ETS proceeds to spur the diffusion of renewable energies: An analysis based on the dynamic oligopolistic electricity market model EMELIE," Utilities Policy, Elsevier, vol. 19(1), pages 33-41, January.
    8. Parry, Ian, 2002. "Adjusting Carbon Cost Analyses to Account for Prior Tax Distortions," Discussion Papers dp-02-47, Resources For the Future.
    9. Numan-Parsons, Elisabeth & Stroombergen, Adolf Stroombergen & Fletcher, Ngaio, 2011. "Business Responses to the Introduction of the New Zealand Emissions Trading Scheme: Part I," Occasional Papers 11/4, Ministry of Economic Development, New Zealand.
    10. Hart, Rob, 2004. "Growth, environment and innovation--a model with production vintages and environmentally oriented research," Journal of Environmental Economics and Management, Elsevier, vol. 48(3), pages 1078-1098, November.
    11. Parry, Ian W.H., 2012. "Reforming the tax system to promote environmental objectives: An application to Mauritius," Ecological Economics, Elsevier, pages 103-112.
    12. Requate, Till, 2005. "Dynamic incentives by environmental policy instruments--a survey," Ecological Economics, Elsevier, vol. 54(2-3), pages 175-195, August.
    13. Parry, Ian, 2015. "Designing Fiscal Policy to Address the External Costs of Energy," International Review of Environmental and Resource Economics, now publishers, vol. 8(1), pages 1-56, May.
    14. Dagmar Nelissen & Till Requate, 2007. "Pollution-reducing and resource-saving technological progress," International Journal of Agricultural Resources, Governance and Ecology, Inderscience Enterprises Ltd, pages 5-44.
    15. Fischer, Carolyn, 2008. "Emissions pricing, spillovers, and public investment in environmentally friendly technologies," Energy Economics, Elsevier, vol. 30(2), pages 487-502, March.
    16. Aldy, Joseph E. & Krupnick, Alan J. & Newell, Richard G. & Parry, Ian W.H. & Pizer, William A., 2009. "Designing Climate Mitigation Policy," Discussion Papers dp-08-16, Resources For the Future.
    17. Baker, Erin & Clarke, Leon & Shittu, Ekundayo, 2008. "Technical change and the marginal cost of abatement," Energy Economics, Elsevier, vol. 30(6), pages 2799-2816, November.
    18. Fischer, Carolyn & Newell, Richard, 2004. "Environmental and Technology Policies for Climate Mitigation," Discussion Papers dp-04-05, Resources For the Future.
    19. Apergis, Nicholas & Eleftheriou, Sofia & Payne, James E., 2013. "The relationship between international financial reporting standards, carbon emissions, and R&D expenditures: Evidence from European manufacturing firms," Ecological Economics, Elsevier, vol. 88(C), pages 57-66.
    20. Clancy, Matthew & Moschini, GianCarlo, 2016. "Pushing and Pulling Environmental Innovation: R&D Subsidies and Carbon Taxes," 2016 Annual Meeting, July 31-August 2, 2016, Boston, Massachusetts 235710, Agricultural and Applied Economics Association.
    21. Joseph E. Aldy & Alan J. Krupnick & Richard G. Newell & Ian W. H. Parry & William A. Pizer, 2010. "Designing Climate Mitigation Policy," Journal of Economic Literature, American Economic Association, pages 903-934.
    22. Gerhard Kempkes & Carsten Pohl, 2010. "The efficiency of German universities-some evidence from nonparametric and parametric methods," Applied Economics, Taylor & Francis Journals, vol. 42(16), pages 2063-2079.
    23. Yoram Bauman & Myunghun Lee & Karl Seeley, 2008. "Does Technological Innovation Really Reduce Marginal Abatement Costs? Some Theory, Algebraic Evidence, and Policy Implications," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 40(4), pages 507-527, August.
    24. Fischer, Carolyn & Newell, Richard G., 2008. "Environmental and technology policies for climate mitigation," Journal of Environmental Economics and Management, Elsevier, vol. 55(2), pages 142-162, March.

    More about this item

    Keywords

    innovation; welfare; regulation; endogenous; technological; change; R&D;

    JEL classification:

    • Q16 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - R&D; Agricultural Technology; Biofuels; Agricultural Extension Services
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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