Abatement,R&D and growth with a pollution ceiling |
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| Institution: | 1. Department of Chemistry, Indian Institute of Technology (Banaras Hindu University) Varanasi, Varanasi 221 005, India;2. Institute for Water and Wastewater Technology, Durban University of Technology, PO Box 1334, Durban 4000, South Africa;1. School of Mathematics and Statistics, Shaoguan University, Shaoguan 512005, China;2. School of Earth and Environmental Sciences, The University of Queensland, Brisbane, Australia |
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| Abstract: | The consequences of the 2 °C climate target and the implicitly imposed ceiling on CO2 have been analyzed in several studies. We use an endogenous growth model with a ceiling and an abatement option to study the effect of the ceiling on the allocation of limited funds for R&D, abatement and capital accumulation. It is found that the advantagenousness of abatement rises with the cost advantage of fossil fuel versus backstop. If the cost advantage is sufficiently large at some point in time it outweighs the costs of abatement and the gains of R&D and capital accumulation. The reallocation of production towards abatement may cause an increase or decrease in long-run consumption. In the latter case, abatement allows an intertemporal consumption trade-off which may even justify the disregard of everlasting growth. In case of stock dependent fossil fuel costs, an abatement induced speed-up of technology development may cause an increase in fossil fuel stock left in situ. |
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| Keywords: | Climate change Research and development Abatement Endogenous growth Fossil fuel Renewable resource |
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