Climate change mitigation options and directed technical change: A decentralized equilibrium analysis GRIMAUD Andre; LAFFORGUE Gilles; MAGNE Bertrand

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GRIMAUD Andre ; LAFFORGUE Gilles ; MAGNE Bertrand
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Resource and Energy Economics
Global temperature changes -- Analysis; Carbon taxes -- Analysis; Economics
To link to full-text access for this article, visit this link: Byline: Andre Grimaud (a), Gilles Lafforgue (b), Bertrand Magne (c) Keywords: Climate change; Energy; CCS; Directed technical change; Carbon tax; R&D subsidies Abstract: The paper considers an endogenous growth model with climate change as well as three R&D sectors dedicated to energy, CCS (Carbon Capture and Storage) and backstop efficiency. First, we characterize the set of decentralized equilibria: a particular equilibrium is associated with any vector of policy instruments including a carbon tax and a subsidy to each R&D sector. Second, we show that it is possible to express any equilibrium as the solution of a maximization program. Third, we solve the first-best optimum problem and thereby deriving the optimal instruments. Finally, we illustrate the theoretical model using calibrated functional specifications. In particular, we investigate the effects of various combinations of policy instruments (including the optimal ones) by determining the deviation of each corresponding equilibrium from the "laisser-faire" benchmark. We find notably that introducing an R&D subsidy hardly affects emissions when a carbon tax is already implemented, thus revealing a complementary effect between these two policy instruments. Author Affiliation: (a) Toulouse School of Economics (IDEI and LERNA) and Toulouse Business School, France (b) Toulouse School of Economics (INRA-LERNA), 21 allee de Brienne, 31000 Toulouse, France (c) International Energy Agency, Paris, France Article History: Received 30 November 2007; Revised 19 November 2010; Accepted 23 November 2010 Article Note: (footnote) [star] The viewpoints expressed in this paper are solely those of the authors; they do not represent those of the International Energy Agency and its member countries.
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