Permit markets, carbon prices and the creation of innovation clusters

Hans Gersbach and Marie-Catherine Riekhof

Resource and Energy Economics, 2021, vol. 65, issue C

Abstract: Innovation clusters combining public and private effort to develop breakthrough technologies promise greater technological advances to slow down climate change. We use a multi-country model with an emission trading system to examine whether and how international climate policy can incentivize countries to create such innovation clusters. We find that a minimal carbon price is needed to attract applied research firms, but countries may nevertheless fail to invest in complementary research infrastructure. We construct a mechanism that leads to innovation clusters when emissions targets are set before uncertainty surrounding technological developments is resolved. It is a combination of low permit endowments for the country with the lowest costs to build the needed infrastructure, compensation for this country by profits from permit trade, and maximal possible permit endowments for the remaining countries. We outline how the EU-ETS can be further refined according to this mechanism.

Keywords: International permit markets; Carbon prices; Innovation clusters; Research infrastructure; Applied R&D; Climate change mitigation; Externalities (search for similar items in EconPapers)
JEL-codes: H23 O32 Q54 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Permit Markets, Carbon Prices and the Creation of Innovation Clusters (2018)
Working Paper: Permit Markets, Carbon Prices and the Creation of Innovation Clusters (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:resene:v:65:y:2021:i:c:s0928765521000142

DOI: 10.1016/j.reseneeco.2021.101229

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