Climate Policy without Commitment

Rolf Golombek, Mads Greaker and Michael Hoel ()

No 2909, CESifo Working Paper Series from CESifo

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 offered R&D subsidy is lower than the optimal subsidy, the current (sub-game perfect) climate tax should exceed the first-best climate tax.

Keywords: time consistency; carbon tax; climate policy; R&D; endogenous technological change (search for similar items in EconPapers)
JEL-codes: H21 O30 Q20 Q28 Q42 (search for similar items in EconPapers)
Date: 2010
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Working Paper: Climate Policy without Commitment (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_2909

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