Journal
JOURNAL OF THE ASSOCIATION OF ENVIRONMENTAL AND RESOURCE ECONOMISTS
Volume 6, Issue 2, Pages 135-175Publisher
UNIV CHICAGO PRESS
DOI: 10.1086/701805
Keywords
directed technological change; knowledge spillovers; energy; climate change
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Funding
- Swedish Energy Agency [37758-1]
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We develop a climate policy model with directed technological change (DTC) in the energy sector. The model delivers both analytical and numerical results that give a clear understanding of the respective roles of research subsidies and emissions pricing. By contrast to existing models with DTC, ours is close in structure to recent integrated assessment models, leading to dramatically different results. Although clean-research subsidies are substantial initially, they subsequently decline whereas emissions taxes increase without bound. Furthermore, emissions taxes are far more important than research subsidies: in our baseline parameterization, a regulator unable to tax can only achieve 36% of potential benefits, whereas a regulator unable to subsidize can achieve 91% of potential benefits.
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