Environmental and Resource Economics

, Volume 31, Issue 2, pp 201–227 | Cite as

Climate Policy under Technology Spillovers

Article

Abstract

We study climate policy when there are technology spillovers between countries, as there is no instrument that (directly) corrects for these externalities. Without an international climate agreement, the (non-cooperative) equilibrium depends on whether countries use tradable quotas or carbon taxes as their environmental policy instruments. All countries are better-off in the tax case than in the quota case. Two types of international climate agreements are then studied: One is a Kyoto type of agreement where each country is assigned a specific number of internationally tradable quotas. In the second type of agreement, a common carbon tax is used domestically in all countries. None of the cases satisfy the conditions for the social optimum. Even if the quota price is equal to the Pigovian level, R&D investments will be lower than what is socially optimal in the quota case. It is also argued that the quota agreement gives higher R&D expenditures and more abatement than the tax agreement.

Keywords

climate policy international environmental agreements R&D technology spillovers 

JEL classifications

O30 H23 Q20 Q28 Q48 

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Copyright information

© Springer 2005

Authors and Affiliations

  1. 1.Frisch CentreOsloNorway
  2. 2.Department of EconomicsUniversity of OsloOsloNorway

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