Scandinavian Working Papers in Economics
Memorandum,
Oslo University, Department of Economics
No 02/2010: Climate Policy without Commitment
Rolf Golombek, Mads Greaker and Michael Hoel ()
Additional contact information
Rolf Golombek: The Frisch Center for Economic Research, Postal: Ragnar Frisch Centre for Economic Research, Gaustadalléen 21, N-0349 Oslo, , Norway, ,
Mads Greaker: Statistics Norway, Postal: Statistics Norway, Pb 8131 Dep, NO-0033 Oslo, Norway
Michael Hoel: Dept. of Economics, University of Oslo, Postal: Department of Economics, University of Oslo, P.O Box 1095 Blindern, N-0317 Oslo, Norway
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 o¤ered R&D subsidy is lower than the optimal subsidy, the current (sub-game perfect) climate tax should exceed the …rst-best climate tax.
Keywords: Time consistency; carbon tax; climate policy; R&D; endogenous technological change
20 pages, August 11, 2010
Full text files
Memo-02-2010.pdf
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