Carbon Taxes and Innovation without Commitment
Link to article:
Authors:
Golombek, Rolf, Mads Greaker og Michael Hoel
Year:
2010
Reference:
The B.E. Journal of Economic Analysis & Policy
10(1), article 32Summary
Climate mitigation policy should be imposed over a long period, and spur innovation of new technologies in order to make stabilization of green house gas concentration economically feasible. The government may announce current and future policy packages that stimulate current R&D in climate-friendly technologies. However, once climate-friendly technologies have been developed, the government may have no incentive to implement the pre-announced future policies, that is, there may be a time inconsistency problem. We show that if the government can optimally subsidize R&D today, there is no time inconsistency problem. Thus, lack of commitment is not an argument for higher current R&D subsidies than the first-best subsidy. If the offered R&D subsidy is lower than the optimal subsidy, the current (sub-game perfect) carbon tax rate exceeds the first-best carbon tax rate.
Keywords:
time consistency, carbon tax, climate policy, R&D, endogenous technological change
Project:
Oppdragsgiver: Norges forskningsråd, RENERGIOppdragsgivers prosjektnr.:
Frisch prosjekt: 3146 - Subsidizing R&D and installment of carbon abatement in open economics
