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A paler shade of green: Environmental policy under induced technical change

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  • Di Maria, Corrado
  • Smulders, Sjak

Abstract

Conventional wisdom argues that environmental policy is less costly if it induces the development of cleaner technologies. In contrast to this argument, we show that once the second-best nature of actual economies is taken into account, the cost of environmental policy may well be larger with induced technical change (ITC) than without. Thus, ITC may lower both the emissions reductions and the welfare gains associated with environmental policy. In an endogenous policy framework, ITC may reduce the desired stringency of the policy.

Suggested Citation

  • Di Maria, Corrado & Smulders, Sjak, 2017. "A paler shade of green: Environmental policy under induced technical change," European Economic Review, Elsevier, vol. 99(C), pages 151-169.
    • Handle: RePEc:eee:eecrev:v:99:y:2017:i:c:p:151-169
    DOI: 10.1016/j.euroecorev.2017.01.002
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    Cited by:

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    2. Cheng, Chu-chuan & Chen, Ping-ho & Chu, Hsun & Wang, Yi-chiuan, 2024. "What growth policies protect the environment? A two-engine growth model," Journal of Macroeconomics, Elsevier, vol. 81(C).
    3. Fajardo Baquero, Nicolás, 2024. "Don't Let Me Down: Climate Change, Technological Transfers, and International Agreements," Documentos CEDE 21187, Universidad de los Andes, Facultad de Economía, CEDE.
    4. Inge M. Bijgaart & Sjak Smulders, 2018. "Does a Recession Call for Less Stringent Environmental Policy? A Partial-Equilibrium Second-Best Analysis," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 70(4), pages 807-834, August.
    5. Di Maria, Corrado & Zarkovic, Maja & Hintermann, Beat, 2020. "Are Emissions Trading Schemes Cost-effective?," Working papers 2020/13, Faculty of Business and Economics - University of Basel.
    6. Strandholm, John C. & Espinola-Arredondo, Ana & Munoz-Garcia, Felix, 2021. "Pollution abatement with disruptive R&D investment," Resource and Energy Economics, Elsevier, vol. 66(C).

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    More about this item

    Keywords

    Environmental policy; Innovation policy; Induced technical change; Pollution-saving technical change; Pollution-using technical change; Crowding-out; second-best policy;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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