A paler shade of green

Environmental policy under induced technical change

C. Di Maria, Sjak Smulders

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Conventional wisdom argues that environmental policy is less costly if it induces the development of cleaner technologies. In contrast to this argument, we show that once the second-best nature of actual economies is taken into account, the cost of environmental policy may well be larger with induced technical change (ITC) than without. Thus, ITC may lower both the emissions reductions and the welfare gains associated with environmental policy. In an endogenous policy framework, ITC may reduce the desired stringency of the policy.
Original languageEnglish
Pages (from-to)151-169
JournalEuropean Economic Review
Volume99
Early online date22 Jan 2017
DOIs
Publication statusPublished - Oct 2017

Fingerprint

Environmental policy
Induced technical change
Emission reduction
Welfare gains
Wisdom
Endogenous policy
Costs

Keywords

  • environmental policy
  • innovation policy
  • induced technical change
  • pollution-saving technical change
  • pollution-using technical change
  • crowding-out
  • second-best policy

Cite this

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A paler shade of green : Environmental policy under induced technical change. / Di Maria, C.; Smulders, Sjak.

In: European Economic Review, Vol. 99, 10.2017, p. 151-169.

Research output: Contribution to journalArticleScientificpeer-review

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