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A note on environmental policy and innovation when governments cannot commit

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  • Montero, Juan Pablo

Abstract

It is widely accepted that one of the most important characteristics of an effective pollution control policy is to provide firms with credible incentives to make long-run investments in R&D that can drastically reduce pollution. Recognizing that a government may be tempted to revise its policy design after innovations become available, this note shows how the performance of two policy instruments—prices (uniform taxes) and quantities (tradeable pollution permits)—differ in such a setting. I also discuss the gains from combining either instrument with subsidies to adopting firms.

Suggested Citation

  • Montero, Juan Pablo, 2011. "A note on environmental policy and innovation when governments cannot commit," Energy Economics, Elsevier, vol. 33(S1), pages 13-19.
    • Handle: RePEc:eee:eneeco:v:33:y:2011:i:s1:p:s13-s19
    DOI: 10.1016/j.eneco.2011.07.022
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    References listed on IDEAS

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    More about this item

    Keywords

    Innovation; Pollution; Commitment;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation
    • L90 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • 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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