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Optimal timing of climate change policy; Interaction between carbon taxes
and innovation externalities
By Gerlagh, Reyer, Snorre Kverndokk and Knut Einar Rosendahl
2009
Environmental and Resource Economics, vol. 43, no. 3, pp. 369-390
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Abstract |
This paper addresses the impact of endogenous technology through research
and development (R&D) on the timing of climate change policy. We develop a
model with a stock pollutant (carbon dioxide) and abatement technological
change through R&D, and we use the model to study the interaction between
carbon taxes and innovation externalities. Our analysis shows that the
timing of optimal emission reduction policy strongly depends on the set of
policy instruments available. When climate-specific R&D targeting
instruments are available, policy has to use these to step up early
innovation. When these instruments are not available, policy has to steer
innovation through creating demand for emission saving technologies. That
is, carbon taxes should be high compared to the Pigouvian levels when the
abatement industry is developing. Finally, we calibrate the model in order
to explore the magnitude of the theoretical findings within the context of
climate change policy. |
| JEL Classification:
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H21, O30, Q42 |
| Keywords:
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Climate change, environmental policy, technological change, research and development |
| Project:
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3144 Post Kyoto Climate Agreements and Technological Innovation
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