Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/171596
Authors: 
Ramer, Roger
Year of Publication: 
2011
Series/Report no.: 
Economics Working Paper Series 11/153
Abstract: 
In this paper, we use a CGE model with endogenous growth to study the interplay between environmental regulation, innovation and sectoral growth. We find that a stringent reduction target for carbon emissions combined with a CO2-tax leads to structural changes. Under the assumption of a unilateral policy, the economy specializes in producing the energy-extensive good. Coupling the carbon tax with policies that aim at directly supporting sectoral capital accumulation significantly mitigates the negative impacts on competitiveness and growth. Finally, we identify two parameters that play an important role in applied energy policy analysis. First, the assumptions on the substitutability between fossil and non-fossil energy strongly affect the effectiveness of a given policy. When fossil and non-fossil energy are good substitutes, structural change in the economy is far less pronounced than under relative complementarity. Second, the rate of pure time preference has a pronounced impact on the investment incentives and thus on long-run development. Increasing the discount rate from 0.9% to 4.5% leads to a contraction in investments and to lower growth rates in all sectors.
Subjects: 
Energy and growth
CGE model
induced innovation
structural change
JEL: 
C68
O31
O41
Q43
Persistent Identifier of the first edition: 
Document Type: 
Working Paper
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