Non-cooperative and cooperative climate policies with anticipated breakthrough technology |
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| Institution: | 1. Ifo Institute, Munich, Germany;2. OXCARRE, Department of Economics, University of Oxford, UK;3. VU University Amsterdam, The Netherlands;1. Norwegian School of Economics (NHH), Department of Economics, Helleveien 30, 5045, Bergen, Norway;2. Natural Resources Institute Finland (Luke), Latokartanonkaari 9, 00790, Helsinki, Finland;1. University of Oxford, Manor Road Building, Manor Road, Oxford OX1 3UQ, UK;2. St. Petersburg State University, 7/9 Universitetskaya nab., St. Petersburg 199034, Russia;3. Vrije Universiteit Amsterdam, CESifo and CEPR, The Netherlands;1. National Oceanic and Atmospheric and Administration, National Marine Fisheries Service, Southwest Fisheries Science Center, 8901 La Jolla Shores Drive, La Jolla, CA 92037, USA;2. Department of Sociology, Environmental and Business Economics, Centre for Fisheries & Aquaculture Management & Economics (FAME), University of Southern Denmark, Denmark;1. IPAG Business School, Paris;2. Department of Spatial Economics, Vrije Universiteit Amsterdam, The Netherlands;3. Tinbergen Institute, The Netherlands;4. Department of Social Sciences, Wageningen University, The Netherlands;1. Department of Economics, University of Hagen, Universitätsstraße 41, 58097 Hagen, Germany;2. Department of Economics, University of Hamburg, Von-Melle-Park 5, 20146 Hamburg, Germany |
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| Abstract: | Global warming can be curbed by pricing carbon emissions and thus substituting fossil fuel with renewable energy consumption. Breakthrough technologies (e.g., fusion energy) can reduce the cost of such policies. However, the chance of such a technology coming to market depends on investment. We model breakthroughs as an irreversible tipping point in a multi-country world, with different degrees of international cooperation. We show that international spill-over effects of R&D in carbon-free technologies lead to double free-riding, strategic over-pollution and underinvestment in green R&D, thus making climate change mitigation more difficult. We also show how the demand structure determines whether carbon pricing and R&D policies are substitutes or complements. |
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| Keywords: | Global warming Carbon pricing Renewable R&D Tipping point International cooperation Non-cooperative policies Feedback Nash equilibrium H23 Q35 Q38 Q54 Q58 |
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