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Emissions Pricing, Spillovers, and Public Investment in Environmentally Friendly Technologies

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  • Fischer, Carolyn

    (Resources for the Future)

Abstract

In a second-best world of below-optimal pollution pricing, the public return to R&D may be greater than under Pigouvian pricing, due to excess benefits of increasing abatement, or it may be lower, since private actors lack the incentives to take full advantage of the new, cleaner technologies. This paper uses a simple model to demonstrate the interaction between environmental policies, R&D externalities, and the social return to innovation. The results indicate that strong public support for innovation is only justified if at least a moderate emissions policy is in place and spillover effects are significant. Furthermore, in most cases, policy constraints that limit regulatory burdens tend to further limit the scope for public support, even when cost reductions allow for more stringent abatement targets. An exception is when knowledge of the policy adjustment process further reduces private innovation incentives.

Suggested Citation

  • Fischer, Carolyn, 2004. "Emissions Pricing, Spillovers, and Public Investment in Environmentally Friendly Technologies," RFF Working Paper Series dp-04-02, Resources for the Future.
  • Handle: RePEc:rff:dpaper:dp-04-02
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    More about this item

    Keywords

    emissions price; technological innovation; spillovers; R&D policy;
    All these keywords.

    JEL classification:

    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies

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