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Title:Climate policy without commitment PDF Logo
Authors:Golombek, Rolf
Greaker, Mads
Hoel, Michael
Issue Date:2010
Series/Report no.:Memorandum // Department of Economics, University of Oslo 2010,02
Abstract:Climate mitigation policy should be imposed over a long period, and spur development of new technologies in order to make stabilization of green house gas concentrations economically feasible. The government may announce current and future policy packages that stimulate current R&D in climate-friendly technologies. However, once climate-friendly technologies have been developed, the government may have no incentive to implement the pre-announced future policies, that is, there may be a time inconsistency problem. We show that if the government can optimally subsidize R&D today, there is no time inconsistency problem. Thus, lack of commitment is not an argument for higher current R&D subsidies. If the offered R&D subsidy is lower than the optimal subsidy, the current (sub-game perfect) climate tax should exceed the first-best climate tax.
Subjects:Time consistency
carbon tax
climate policy
R&D
endogenous technological change
JEL:H21
O30
Q2
Q28
Q42
Document Type:Working Paper
Appears in Collections:Memorandum, Department of Economics, University of Oslo

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