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Mirage on the Horizon: Geoengineering and Carbon Taxation Without Commitment

Daron Acemoglu and Will Rafey

No 24411, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We show that, in a model without commitment to future policies, geoengineering breakthroughs can have adverse environmental and welfare effects because they change the (equilibrium) carbon taxes. In our model, energy producers emit carbon, which creates a negative environmental externality, and may decide to switch to cleaner technology. A benevolent social planner sets carbon taxes without commitment. Higher future carbon taxes both reduce emissions given technology and encourage energy producers to switch to cleaner technology. Geoengineering advances, which reduce the negative environmental effects of the existing stock of carbon, decrease future carbon taxes and thus discourage private investments in conventional clean technology. We characterize the conditions under which these advances diminish - rather than improve - environmental quality and welfare.

JEL-codes: C65 O30 O31 O33 Q01 Q4 Q54 Q55 Q58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env and nep-res
Date: 2018-03
Note: EEE EFG POL
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