Non-Cooperative and Cooperative Climate Policies with Anticipated Breakthrough Technology

60 Pages Posted: 11 Jun 2018

See all articles by Niko Jaakkola

Niko Jaakkola

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Rick van der Ploeg

University of Oxford

Date Written: April 19, 2018

Abstract

Global warming can be curbed by pricing carbon emissions and thus substituting fossil fuel with renewable energy consumption. Breakthrough technologies (e.g., fusion energy) can reduce the cost of such policies. However, the chance of such a technology coming to market depends on investment. We model breakthroughs as an irreversible tipping point in a multi-country world, with different degrees of international cooperation. We show that international spill-over effects of R&D in carbon-free technologies lead to double free-riding, strategic over-pollution and underinvestment in green R&D, thus making climate change mitigation more difficult. We also show how the demand structure determines whether carbon pricing and R&D policies are substitutes or complements.

Keywords: climate policy with breakthrough technology

JEL Classification: D620, D900, H230, Q350, Q380, Q540, Q580

Suggested Citation

Jaakkola, Niko and van der Ploeg, Frederick, Non-Cooperative and Cooperative Climate Policies with Anticipated Breakthrough Technology (April 19, 2018). CESifo Working Paper Series No. 6977, Available at SSRN: https://ssrn.com/abstract=3193873

Niko Jaakkola (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Frederick Van der Ploeg

University of Oxford ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

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