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Polluting Non-Renewable Resources, Carbon Abatement and Climate Policy in a Romer Growth Model

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  • Grimaud, André
  • Magné, Bertrand
  • Rougé, Luc

Abstract

We study how the availability of an abatement technology affects the optimal use of polluting exhaustible resources, and optimal climate policies. We develop a Romer endogenous growth model in which the accumulated stock of greenhouse gas emissions harms social welfare. Since the abatement technology allows reducing the effective pollution for each unit of resource use, extraction and pollution are partially disconnected. Abatement accelerates the optimal extraction pace, though it may foster CO2 emissions for the early generations. Moreover, it is detrimental to output growth. Next, we study the implementation of a unit tax on carbon emissions. Contrary to previous results of the literature, its level here matters, as it provides the right incentives to abatement effort. When it is measured internal good, the optimal (Pigovian) carbon tax is increasing over time, while it is constant when expressed in utility. Moreover, it can be interpreted ex-post as a decreasing ad-valorem tax on the resource. Finally, we study the impact of the climate policy on the decentralized equilibrium: in particular, it fosters both the intensity and the rate of carbon abatement. In the near-term, it spurs research and output growth, while decreasing output level.

Suggested Citation

  • Grimaud, André & Magné, Bertrand & Rougé, Luc, 2009. "Polluting Non-Renewable Resources, Carbon Abatement and Climate Policy in a Romer Growth Model," TSE Working Papers 09-023, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:21940
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    Cited by:

    1. Karen Pittel & Lucas Bretschger, 2010. "The implications of heterogeneous resource intensities on technical change and growth," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 43(4), pages 1173-1197, November.
    2. Lucas Bretschger & Christos Karydas, 2018. "Optimum Growth and Carbon Policies with Lags in the Climate System," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 70(4), pages 781-806, August.

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    More about this item

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q20 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - General
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development

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