Strategic investment in climate friendly technologies: the impact of permit trade

Mads Greaker and Cathrine Hagem

Discussion Papers from Statistics Norway, Research Department

Abstract: Our point of departure is that a group of developed countries invest in the development of greenhouse gas (GHG) abatement technologies both at home and in developing countries. Such investments reduce the cost of future GHG abatement, and influence the future GHG abatement choices of both developed and developing countries. We show how a common permit market affects the industrialized countries' strategic investment decisions. As opposed to a situation without a permit market, the industrialized countries may want to overinvest in new GHG abatement technologies both at home and abroad. That is, they increase their R&D investment to such an extent that the cost reductions from the least profitable project actually fall short of the R&D costs. Earlier research has only pointed to overinvestment abroad. Moreover, the effects of investment abroad may be tougher emission reduction targets at home, which is not possible without permit trade.

Keywords: greenhouse gas abatement technologies; climate policy; strategic investments; permit trade. (search for similar items in EconPapers)
JEL-codes: D62 H41 O38 Q58 (search for similar items in EconPapers)
Date: 2010-04
New Economics Papers: this item is included in nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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