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

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

SLU Authors

• Hart, Robert

  • Department of Economics, Swedish University of Agricultural Sciences
    

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