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Title:Climate policy as expectation management? PDF Logo
Authors:Narita, Daiju
Issue Date:2010
Series/Report no.:Kiel working paper 1624
Abstract:It is believed that the primary economic solution to climate change is an introduction of a carbon pricing system anchored to the social cost of carbon, either as a form of tax or tradable permits. Potentially significant externalities accompanying the introduction of emission-reducing technologies, however, imply that the standard argument does not capture some important aspects for the designing of climate policy such as expectation-driven technology adoption. By using a simple model, we show some possible cases where carbon emission reduction progresses in a self-fulfilling prophecy by firms expecting others' future actions. In such circumstances, the carbon pricing system does not have much influence on determining the final outcome of economy-wide emission reduction. This highlights the danger of overemphasis on finding the 'right' carbon price in policy making and the role of climate policy as expectation management.
Subjects:Climate policy
technology choice
expectations
multiple equilibria
JEL:Q54
O33
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des IfW
Kieler Arbeitspapiere, IfW

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