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Impacts of CO2-Taxes in an Economy with Niche Markets and Learning-by-Doing

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Abstract

In this paper, we analyse the impact of carbon taxes on emission levels, when niche markets exist for new carbon-free technologies, and when these technologies experience ``learning-by-doing'' effects. For this purpose, a general equilibrium model has been developed, DEMETER, that specifies two energy technologies: one based on fossil fuels and one on a composite of carbon-free technologies. Initially, the carbon-free technology has relatively high production costs, but niche markets ensure positive demand. Learning-by-doing decreases production costs, which increases the market share, which in turn accelerates learning-by-doing, and so forth. This mechanism allows a relatively modest carbon tax, of about 50 US$/tC, to almost stabilise carbon emissions at their 2000 levels throughout the entire 21st century. Sensitivity analysis shows that the required carbon tax for emission stabilisation crucially depends on the elasticity of substitution between the fossil-fuel and carbon-free technology.

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Authors and Affiliations

  1. IVM, Institute for Environmental Studies, Vrije Universiteit, De Boelelaan 1087, 1081 HV, Amsterdam, The Netherlands

    Reyer Gerlagh, Bob van der Zwaan & Marjan W. Hofkes

  2. ECN, Energy Research Centre of the Netherlands, Amsterdam/Petten, The Netherlands

    Bob van der Zwaan

  3. John F. Kennedy School of Government, Harvard University, Cambridge, Massachusetts, USA

    Bob van der Zwaan

  4. IIASA, International Institute for Applied System Analysis, Laxenburg, Austria

    Ger Klaassen

Authors
  1. Reyer Gerlagh
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  2. Bob van der Zwaan
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  3. Marjan W. Hofkes
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  4. Ger Klaassen
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Correspondence to Reyer Gerlagh.

Additional information

(part of the research was performed when the author was Science Fellow at CISAC, Center for International Security and Cooperation, Stanford University, Stanford, California, USA)

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Gerlagh, R., van der Zwaan, B., Hofkes, M.W. et al. Impacts of CO2-Taxes in an Economy with Niche Markets and Learning-by-Doing. Environmental and Resource Economics 28, 367–394 (2004). https://doi.org/10.1023/B:EARE.0000031059.83168.fb

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  • DOI: https://doi.org/10.1023/B:EARE.0000031059.83168.fb

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