Endogenous technology and tradable emission quotas |
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Authors: | Rolf Golombek Michael Hoel |
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Institution: | 1. Frisch Centre, Gaustadalléen 21, N-0349 Oslo, Norway;2. Department of Economics, University of Oslo, P.O. Box 1095 Blindern, N-0317 Oslo, Norway |
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Abstract: | We study an international climate agreement that assigns emission quotas to each participating country. Unlike the simplest models in the literature, we assume that abatement costs are affected by R&D activities undertaken in all firms in all countries, i.e. abatement technologies are endogenous. In line with the Kyoto agreement we assume that the international climate agreement does not include R&D policies. We show that for a second-best agreement with heterogeneous countries, marginal costs of abatement differ across countries. In other words, the second-best outcome cannot be achieved if emission quotas are tradable. |
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