Economic and Environmental Effectiveness of a Technology-based Climate Protocol

The present stalemate in climate negotiations has led policy analysts and economists to explore the possible emergence of alternative climate regimes. This paper explores the idea of replacing international cooperation on greenhouse gas emission control with international cooperation on climate-related technological innovation and diffusion. This idea – recently proposed among others by Barrett (2001) and Benedick (2001) – is based on the insight that incentives to free-ride are much smaller in the case of technological cooperation than in the case of cooperation on emission control. This paper provides a first applied game theory analysis of a technology-based climate protocol by assessing: (i) the self-enforcingness (namely, the absence of incentives to free ride) of the coalition that would form when countries negotiate on climate-related technological cooperation; (ii) the environmental effectiveness of a technology-based climate protocol. The analysis is carried out by using a model in which endogenous and induced technical change are explicitly modelled and in which international technological spillovers are also quantified. The results of our analysis partly support Barrett’s and Benedick’s conjecture. On the one hand, a self-enforcing agreement is more likely to emerge when countries cooperate on environmental technological innovation and diffusion than when they cooperate on emission abatement. However, technological cooperation – without any commitment to emission control – may not lead to a sufficient abatement of greenhouse gas concentrations.Agreements, Climate, Incentives, Technological change, Policy

Back to Kyoto? US Participation and the Linkage between R&D and Climate Cooperation

The US decision not to ratify the Kyoto Protocol and the recent outcomes of the Bonn and Marrakech Conferences of the Parties drastically reduces the effectiveness of the Kyoto Protocol in controlling GHG emissions. The reason is not only the reduced emission abatement in the US, but also the spillover effects on technology and countries’ relative bargaining power induced by the US decision. Therefore, it is crucial to analyse whether an incentive strategy exists that could induce the US to revise their decision and to comply with the Kyoto commitments. One solution, occasionally proposed in the literature and in actual policymaking, is to link negotiations on climate change control with decisions concerning international R&D cooperation. This paper explores this idea by analysing on the one hand the incentives for EU, Japan and Russia to adopt this strategy, and on the other hand the incentives for the US to join a coalition which cooperates both on climate change control and on technological innovation. The extended regime in which cooperation takes place on both dimensions (GHG emissions and R&D) will be examined from the view point of countries’ profitability and free-riding incentives. Finally, after having assessed the effectiveness and credibility of the issue linkage strategy, we explore the economic and environmental benefits of a new, recently proposed regime, which aims at achieving GHG emission control by enhancing cooperation on technological innovation and diffusion (without targets on emissions).agreements, climate, incentives, negotiations, policy, technological change

Economic and Environmental Effectiveness of a Technology-based Climate Protocol

The present stalemate in climate negotiations between the US and the other Annex I countries has led policy analysts and economists to explore the possible emergence of alternative climate regimes that may be applied after 2012. This paper explores the idea of replacing international cooperation on greenhouse gas emission control with international cooperation on climate-related technological innovation and diffusion. This idea – recently proposed among others by Barrett (2001) and Benedick (2001) – is based on the insight that incentives to free ride are much smaller in the case of technological cooperation than in the case of cooperation on emission control. This paper provides a first applied game theory analysis of a technology-based climate protocol by assessing: (i) the selfenforcingness (namely, the absence of incentives to free ride) of the coalition that would form when countries negotiate on climate-related technological cooperation; (ii) the environmental effectiveness of a technology-based climate protocol. The analysis is carried out by using a model in which endogenous and induced technical change are explicitly modelled. The results of our analysis partly support Barrett’s and Benedick’s conjecture. On the one hand, a self-enforcing agreement is more likely to emerge when countries cooperate on environmental technological innovation and diffusion than when they cooperate on emission abatement. However, technological cooperation – without any commitment to emission control – may not lead to a sufficient abatement of greenhouse gas concentrations.Agreements, Climate, Incentives, Negotiations, Policy

Does Endogenous Technical Change Make a Difference in Climate Policy Analysis? A Robustness Exercise with the FEEM-RICE Model

Technical change is generally considered the key to the solution of environmental problems, in particular global phenomena like climate change. Scientists differ in their views on the thaumaturgic virtues of technical change. There are those who are confident that pollution-free technologies will materialize at some time in the future and will prevent humans from suffering the catastrophic consequences of climate change. Others believe that there are inexpensive technologies already available and argue the case for no-regret adoption policies (e.g. subsidies). Others again believe that the process of technological change responds to economic stimuli. These economic incentives to technological innovation are provided not only by forces that are endogenous to the economic system, but also by suitably designed environmental and innovation policies. In this paper, we consider and translate into analytical counterparts these different views of technical change. We then study alternative formulations of technical change and, with the help of a computerized climate-economy model, carry out a number of optimization runs in order to assess what type of technical change plays a role (assuming it does) in the evaluation of the impact of climate change and of the policies designed to cope with it.Climate policy, Environmental modeling, Integrated assessment, Technical change

Strategic Environmental Policy and the Accumulation of Knowledge

Recent political discussions about the possible advantages of first-mover behaviour in terms of environmental policy again called attention to the well-established controversy about the effects of environmental regulation on international competitiveness. Conventional theory claims that the trade-off between regulation and competitiveness will be negative while the revisionist view, also known as the Porter Hypothesis, argues for the opposite. Several previous attempts that analysed this quarrel by means of strategic trade game settings indeed support the former claim and conclude that, to increase a firm’s competitiveness, ecological dumping is the most likely outcome in a Cournot duopoly configuration. However, these results were derived from one period games in which so-called innovation offsets are unlikely to occur. The present paper considers a two-period model that includes an intertemporally growing firm-level knowledge capital. In doing so the accumulation of knowledge is modelled in a unilateral and a bilateral variant. It is shown that for both scenarios in period 1 the domestic government will set a higher emission tax rate compared to its foreign counterpart. Furthermore, we identify conditions for which the domestic tax rate will be set above the Pigouvian level in period 1 in both model variants.first-mover behaviour, Porter Hypothesis, strategic environmental policy, environmental regulation, international competitiveness

R&D Investment Level and Environment as Predictors of Firm Acquisition

R&D investments contribute to the development of firm technology resources, and the possession of such resources often increases a firm’s attractiveness as a potential acquisition target. However, the value ascribed to a firm’s technology resources by would-be acquirers may be moderated by its industry’s environmental characteristics. Using data from 2886 firms, we find that investments in R&D predict acquisition likelihood and that R&D investments are most strongly associated with acquisition of firms under conditions of high environmental munificence and dynamism. Theoretical and managerial implications are discussed

Induced Technological Change Under Carbon Taxes

We develop an economic partial equilibrium model for energy supply and demand with capital and labor as production factors, and endogenous technological change through learning by research and learning by doing. Our model reproduces the learning curve typical for (bottom-up) energy system models. The model also produces an endogenous S-curved transition from fossil fuel energy sources to carbon-free energy sources over the coming two centuries. We use the model to study changes in fossil fuel and carbon-free energy use and carbon dioxide emissions induced by carbon taxes. It is shown that induced technological change accelerates the substitution of carbon-free energy for fossil fuels substantially, and can increase by factor 5 the cumulative emission reductions achieved through a carbon tax over the period 2000-2100.Induced technological change, Environmental taxes, Partial equilibrium, Learning by doing

STREAM, RIVER, DELTA: INDUCED INNOVATION AND ENVIRONMENTAL VALUES IN ECONOMICS AND POLICY

Environmental Economics and Policy, Resource /Energy Economics and Policy,

Technological Change and the Environment

Environmental policy discussions increasingly focus on issues related to technological change. This is partly because the environmental consequences of social activity are frequently affected by the rate and direction of technological change, and partly because environmental policy interventions can themselves create constraints and incentives that have significant effects on the path of technological progress. This paper, prepared as a chapter draft for the forthcoming Handbook of Environmental Economics (North-Holland/Elsevier Science), summarizes for environmental economists current thinking on technological change in the broader economics literature, surveys the growing economic literature on the interaction between technology and the environment, and explores the normative implications of these analyses. We begin with a brief overview of the economics of technological change, and then examine three important areas where technology and the environment intersect: the theory and empirical evidence of induced innovation and the related literature on the effects of environmental policy on the creation of new, environmentally friendly technology; the theory and empirics of environmental issues related to technology diffusion; and analyses of the comparative technological impacts of alternative environmental policy instruments. We conclude with suggestions for further research on technological change and the environment.technological change, induced innovation, environment, policy

Technological Change and the Environment

Environmental policy discussions increasingly focus on issues related to technological change. This is partly because the environmental consequences of social activity are frequently affected by the rate and direction of technological change, and partly because environmental policy interventions can themselves create constraints and incentives that have significant effects on the path of technological progress. This paper, prepared as a chapter draft for the forthcoming Handbook of Environmental Economics (North-Holland/Elsevier Science), summarizes for environmental economists current thinking on technological change in the broader economics literature, surveys the growing economic literature on the interaction between technology and the environment, and explores the normative implications of these analyses. We begin with a brief overview of the economics of technological change, and then examine three important areas where technology and the environment intersect: the theory and empirical evidence of induced innovation and the related literature on the effects of environmental policy on the creation of new, environmentally friendly technology; the theory and empirics of environmental issues related to technology diffusion; and analyses of the comparative technological impacts of alternative environmental policy instruments. We conclude with suggestions for further research on technological change and the environment.