Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/192518 
Year of Publication: 
2008
Series/Report no.: 
Discussion Papers No. 536
Publisher: 
Statistics Norway, Research Department, Oslo
Abstract: 
This paper studies the timing of subsidies for environmental research and development (R&D) and how innovation policy is influenced by the costs of emissions. We use a dynamic computable general equilibrium (CGE) model with both general R&D and specific environmental R&D. We find two results that are important when subsidizing environmental R&D in order to target inefficiencies in the research markets. Firstly, the welfare gain from subsidies is larger when the costs of emissions are higher. This is because a high carbon tax increases the social (efficient) investment in environmental R&D, in excess of the private investment in R&D. Secondly, the welfare gain is greater when there is a falling time profile of the rate of subsidies for environmental R&D, rather than a constant or increasing profile. The reason is that the innovation externalities are larger in early periods.
Subjects: 
Applied general equilibrium
endogenous growth
research and development
carbon emissions.
JEL: 
E62
H31
O38
Q55
Document Type: 
Working Paper

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