Environmental and Resource Economics

, Volume 27, Issue 1, pp 21–41

Climate Policies and Induced Technological Change: Which to Choose, the Carrot or the Stick?

  • Snorre Kverndokk
  • Knut Einar Rosendahl
  • Thomas F. Rutherford

DOI: 10.1023/B:EARE.0000016787.53575.39

Cite this article as:
Kverndokk, S., Rosendahl, K.E. & Rutherford, T.F. Environmental and Resource Economics (2004) 27: 21. doi:10.1023/B:EARE.0000016787.53575.39


Policies to reduce emissions of greenhousegases such as CO2, will affect the rate andpattern of technological change in alternativeenergy supply and other production processes.Imperfections in markets for non-pollutingtechnologies imply that a decentralised economydoes not deliver a socially optimal outcome,and this could justify policy interventionssuch as subsidies. This paper considers thewelfare effects of technology subsidies as partof a carbon abatement policy package. We arguethat the presence of spillovers in alternativeenergy technologies does not necessarily implythat subsidy policies are welfare improving. Weillustrate this point in the context of ageneral equilibrium model with two forms ofcarbon-free energy, an existing “alternative energy” which is a substitute for carbon-basedfuels, and “new vintage energy” which providesa carbon-free replacement for existing energyservices. Subsidisation of alternative energyon the grounds of spillover effects can bewelfare-worsening if it crowds-out new vintagetechnologies.

climate change policies computable general equilibrium model induced technological change policy instruments spillovers 

Copyright information

© Kluwer Academic Publishers 2004

Authors and Affiliations

  • Snorre Kverndokk
    • 1
  • Knut Einar Rosendahl
    • 2
  • Thomas F. Rutherford
    • 3
  1. 1.Ragnar Frisch Centre for Economic ResearchOsloNorway
  2. 2.Research DepartmentStatistics NorwayOsloNorway
  3. 3.Department of EconomicsUniversity of Colorado at BoulderBoulderUSA

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