Does Technological Innovation Really Reduce Marginal Abatement Costs? Some Theory,Algebraic Evidence,and Policy Implications |
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Authors: | Yoram Bauman Myunghun Lee Karl Seeley |
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Institution: | (1) Program on the Environment, University of Washington, Seattle, WA, USA;(2) Department of International Trade, Inha University, Incheon, Korea;(3) Department of Economics, Hartwick College, Oneonta, NY 13820, USA |
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Abstract: | The existing literature models innovation in pollution control as a reduction in marginal abatement costs. We show that this
assumption is inappropriate for production process innovations such as fuel switching. Algebraically, we examine the effects
of different innovation types on marginal abatement cost curves, showing that some desirable innovations increase marginal abatement costs. Empirically, we estimate marginal abatement costs for sulfur dioxide by measuring the output distance
function for electric power in Korea. Regression results confirm that production process innovations did raise marginal abatement
costs in this case. One policy implication: economic instruments do not always provide stronger innovation incentives than
command-and-control policies.
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Keywords: | Marginal abatement costs Production process innovations Technological change |
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