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Strategic investment in climate friendly technologies: the impact of permit trade

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Our point of departure is that a group of developed countries invest in the development of greenhouse gas (GHG) abatement technologies both at home and in developing countries. Such investments reduce the cost of future GHG abatement, and influence the future GHG abatement choices of both developed and developing countries. We show how a common permit market affects the industrialized countries' strategic investment decisions. As opposed to a situation without a permit market, the industrialized countries may want to overinvest in new GHG abatement technologies both at home and abroad. That is, they increase their R&D investment to such an extent that the cost reductions from the least profitable project actually fall short of the R&D costs. Earlier research has only pointed to overinvestment abroad. Moreover, the effects of investment abroad may be tougher emission reduction targets at home, which is not possible without permit trade.

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  • Mads Greaker & Cathrine Hagem, 2010. "Strategic investment in climate friendly technologies: the impact of permit trade," Discussion Papers 615, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:615
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    2. Carsten Helm & Stefan Pichler, 2015. "Climate Policy with Technology Transfers and Permit Trading," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 60(1), pages 37-54, January.
    3. repec:old:wpaper:341 is not listed on IDEAS

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    More about this item

    Keywords

    greenhouse gas abatement technologies; climate policy; strategic investments; permit trade.;
    All these keywords.

    JEL classification:

    • D62 - Microeconomics - - Welfare Economics - - - Externalities
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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