Timing of innovation policies when carbon emissions are restricted: An applied general equilibrium analysis |
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Authors: | Tom-Reiel Heggedal Karl Jacobsen |
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Institution: | 1. Norwegian School of Management, Oslo, Norway;2. Statistics Norway, Oslo, Norway |
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Abstract: | This paper studies the timing of subsidies for emissions-saving research and development (R&D) and how innovation policy is influenced by a carbon tax. We develop a dynamic computable general equilibrium (CGE) model with both general R&D and specific emissions-saving R&D. We find two results that are important when subsidizing emissions-saving R&D in order to target inefficiencies in the research markets. First, the welfare gain from subsidies is larger when the carbon tax is high. This is because a high carbon tax raises the social value of the emissions-saving technology and that this increase in value is not fully appropriated by the private firms. Secondly, the welfare gain is greater when there is a falling time profile of the rate of subsidies for emissions-saving R&D, rather than a constant or increasing profile. The reason is that knowledge spillovers are larger in early periods. |
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