Environmental and Resource Economics

, Volume 43, Issue 3, pp 369–390

Optimal Timing of Climate Change Policy: Interaction Between Carbon Taxes and Innovation Externalities

  • Reyer Gerlagh
  • Snorre Kverndokk
  • Knut Einar Rosendahl


This paper addresses the impact of endogenous technology through research and development (R&D) on the timing of climate change policy. We develop a model with a stock pollutant (carbon dioxide) and abatement technological change through R&D, and we use the model to study the interaction between carbon taxes and innovation externalities. Our analysis shows that the timing of optimal emission reduction policy strongly depends on the set of policy instruments available. When climate-specific R&D targeting instruments are available, policy has to use these to step up early innovation. When these instruments are not available, policy has to steer innovation through creating demand for emission saving technologies. That is, carbon taxes should be high compared to the Pigouvian levels when the abatement industry is developing. Finally, we calibrate the model in order to explore the magnitude of the theoretical findings within the context of climate change policy.


Climate change Environmental policy Technological change Research and development 

JEL Classification

H21 O30 Q42 


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Copyright information

© Springer Science+Business Media B.V. 2009

Authors and Affiliations

  • Reyer Gerlagh
    • 1
    • 2
  • Snorre Kverndokk
    • 3
  • Knut Einar Rosendahl
    • 4
  1. 1.Economics, School of Social SciencesUniversity of ManchesterManchesterUK
  2. 2.Institute for Environmental StudiesVrije UniversiteitAmsterdamNetherlands
  3. 3.Ragnar Frisch Centre for Economic ResearchOsloNorway
  4. 4.Research DepartmentStatistics NorwayOsloNorway

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