Pollution Regulation and the Efficiency Gains from Technological Innovation (original) (raw)
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How Large are the Welfare Gains from Technological Innovation Induced by Environmental Policies
Journal of Regulatory Economics, 2003
This paper examines whether the welfare gains from technological innovation that reduces future abatement costs are larger or smaller than the “Pigouvian” welfare gains from optimal pollution control. The relative welfare gains from innovation depend on three key factors—the initially optimal level of abatement, the speed at which innovation reduces future abatement costs, and the discount rate. We calculate the welfare gains from innovation under a variety of different scenarios. Mostly they are less than the Pigouvian welfare gains. To be greater, innovation must reduce abatement costs substantially and quickly and the initially optimal abatement level must be fairly modest.
Climatic change, 2009
Many European politicians argue that the EU should set tougher emission targets than what is required by the Kyoto protocol, and moreover, that emission trading with other countries outside EU should be limited so as to keep emission quota prices high. One of the arguments, frequently cited for such a policy, is the need for technological development. However, the literature on climate change and technological innovation does not unambiguously support the need for setting high emission taxes today. In this paper we investigate the relationship between emission taxes and technological change further by modeling innovation activity explicitly. In our model both the amount of R&D and the amount of carbon abatement are decided in a decentralized way by the market as a response to an emission tax. Moreover, we introduce several distinct failures in the market for new innovations, among others, insufficient patent protection and intertemporal knowledge spillovers. Our findings suggest that governments should under some circumstances set a higher carbon tax today if we have technological change driven by R&D than if we have pure exogenous technological change. Based on numerical simulations these circumstances are (a) positive intertemporal knowledge spillovers and/or (b) weak patent protection.
Optimal pollution taxes and endogenous technological progress
Resource and Energy Economics, 1995
The optimal pollution tax becomes complicated when allowance is made for endogenous innovation, under a patent system. However, if anything, it is below marginal environmental damages, to counteract monopoly pricing by the patent holder, the common pool effect associated with research and a possible excess of patent holder revenue over the social benefits from innovation when environmental damages are convex. In cases where patents are weak at securing appropriability, for example when rivals can easily imitate around patented technologies, awarding research prizes or contracts is probably more efficient than raising the pollution tax.
Technology Policy in an Oligopoly with Spillovers and Pollution
SSRN Electronic Journal, 2000
We introduce pollution, as a by-product of production, into a non-tournament model of R&D with spillovers. Technology policy takes the form of either R&D subsidisation or pre-competitive R&D cooperation. We show that, when the emissions tax is exogenous, the optimal R&D subsidy can be negative, i.e. there should be a tax on R&D, depending on the extent of the appropriability problem and the degree of environmental damage. In a wide class of cases, depending on the parameter values, welfare in the case of R&D cooperation, is lower than welfare in the case of R&D subsidisation. In addition, a policy of tying-in the R&D subsidy to abatement results in an allocation where firms undertake the optimal (in a second-best sense) abatement level and social welfare improves.
Environmental Regulation and Technological Innovation with Spillovers
We present a two-period dynamic model of standard setting under asymmetric information to model the attempts by the Califormia Air Resources Board (CARB) in getting car manufacturers to comply with its phase-in of stringent emissions standards. After CARB chooses an initial emissions standard that ?rms are required to comply with, automakers respond by choosing R&D investment and production levels which provide CARB an imperfect signal whether they are more or less capable of complying with the standard. CARB resets the environmental standard and the ?rms once again choose research and production levels. Firms are Cournot duopolists in the product market and can choose to do research noncooperatively or cooperatively in the presence of spillovers. We show that ?rms will behave strategically and underinvest in research both under competitive and cooperative R&D, though the level of underinvestment — the ratchet effect — is greater under cooperative R&D when spillovers are large. We u...
Innovation and Environmental Policy: Clean vs. Dirty Technical Change
SSRN Electronic Journal, 2010
We study a two sector endogenous growth model with environmental quality with two goods and two factors of production, one clean and one dirty. Technological change creates clean or dirty innovations. We compare the laissez-faire equilibrium and the social optimum and study first-and second-best policies. Optimal policy encourages research toward clean technologies. In a second-best world, we claim that a portfolio that includes a tax on the polluting good combined with optimal innovation subsidy policies is less costly than increasing the price of the polluting good alone. Moreover, a discriminating innovation subsidy policy is preferable to a non-discriminating one.
Environmental Innovation and Environmental Policy: An Empirical Test of Bi-Directional Effects
2006
The purpose of this paper is to study the empirical strength of the bi-directional linkages between environmental standards and performance, on the one hand, and environmental innovation, on the other and, hence, the role of policy in spurring environmental R&D and, in turn, ultimate environmental performance. We study these links using an alternative measure of policy stringency, namely, pollutant emissions themselves. Specifically, we examine 107 manufacturing industries at the three-digit SIC code for the period 1989-2002. In view of the joint determination of r esearch and pollution outcomes, we estimate a system of simultaneous equations, using appropriate instruments to identify each endogenous variable. Our empirical results reveal that there is a negative and significant relationship between emissions and environmental patents, in both directions. Thus, environmental R&D both spurs the tightening of government environmental standards and is spurred by the anticipation of such tightening, suggesting that U.S. environmental policy (at least in the context of the manufacturing industries that we study) has been responsive to innovation and effective in inducing innovation. Preliminary results also suggest that a linear feedback model is appropriate in order to capture the dynamic nature of the links between environmental policy and environmental innovation.