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Research article - Peer-reviewed, 2008

The timing of taxes on CO2 emissions when technological change is endogenous

Hart, Rob

Abstract

How do technology spillovers affect the relationship between emissions taxes and technological change? Without spillovers, a regulator applies Pigovian taxes which lead to a first-best optimum (optimal emissions and optimal technology investment). Given spillovers, Pigovian taxes are likely to be second-best optimal if emissions-saving technology and production technology are equally undersupplied; raising taxes above the Pigovian level boosts emissions-saving investment, but only at the expense of production investment. The technologies are equally undersupplied when there is a degree of symmetry between the sectors, and the economy is on a balanced growth path. On a transition path with rising atmospheric stocks and a high level of investment in emissions-saving technology, a regulator may raise carbon taxes above the Pigovian level in order to encourage investment in emissions-saving technology at the expense of production technology. I show this using both analytical and numerical results. (C) 2007 Elsevier Inc. All rights reserved.

Keywords

climate policy; carbon tax; technological change; knowledge spillovers

Published in

Journal of Environmental Economics and Management
2008, Volume: 55, number: 2, pages: 194-212
Publisher: ACADEMIC PRESS INC ELSEVIER SCIENCE

    UKÄ Subject classification

    Social Sciences
    Environmental Sciences related to Agriculture and Land-use
    Economics and Business

    Publication identifier

    DOI: https://doi.org/10.1016/j.jeem.2007.06.004

    Permanent link to this page (URI)

    https://res.slu.se/id/publ/18191