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Environmental Economics and Policy Studies

, Volume 19, Issue 1, pp 151–181 | Cite as

Who gains from technological advancement? The role of policy design when cost development for key abatement technologies is uncertain

  • Matthias Weitzel
Research Article

Abstract

A simple model is used to illustrate the effects of a reduction in (marginal) abatement cost in a two-country setting. It can be shown that a country experiencing a cost reduction can actually be worse off. This holds true for a variety of quantity and price-based emission policies. Under price-based policies, a country with lower abatement costs might engage in additional abatement effort for which it is not compensated. Under a quantity-based policy with a given allocation, a seller of permits can also be negatively affected by a lower carbon price. We also argue that abatement cost shocks to renewable energy and carbon capture and storage (CCS) are different in terms of their effects on international energy markets. A shock to renewable energy benefits energy importers because the value of fossil fuels is reduced. The opposite holds for a shock to CCS which benefits energy exporters. The channels identified in the theoretical model can be confirmed in a more complex global computable general equilibrium model. Some regions are indeed worse off from a shock that lowers their abatement costs.

Keywords

Abatement cost Carbon capture and storage Climate policy Renewable energy Technological uncertainty 

JEL Classification

C68 Q54 Q58 

Notes

Acknowledgments

I am grateful to Sonja Peterson for very helpful comments. I would like to thank Till Requate for fruitful discussions and Michael Rose for research assistance. Anonymous reviewers provided helpful suggestions that improved the manuscript. Funding was provided by the German Federal Ministry of Education and Research (reference 01LA1127C).

Supplementary material

10018_2016_142_MOESM1_ESM.pdf (1.3 mb)
Supplementary material 1 (pdf 1350 KB)

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Copyright information

© Society for Environmental Economics and Policy Studies and Springer Japan 2016

Authors and Affiliations

  1. 1.National Center for Atmospheric ResearchBoulderUSA
  2. 2.Kiel Institute for the World EconomyKielGermany

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