Polluting Non-Renewable Resources, Carbon Abatement and Climate Policy in a Romer Growth Model

André Grimaud, Bertrand Magné and Luc Rouge

No 09-023, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: We study how the availability of an abatement technology affects the optimal use of polluting exhaustible resources, and optimal climate policies. We develop a Romer endogenous growth model in which the accumulated stock of greenhouse gas emissions harms social welfare. Since the abatement technology allows reducing the effective pollution for each unit of resource use, extraction and pollution are partially disconnected. Abatement accelerates the optimal extraction pace, though it may foster CO2 emissions for the early generations. Moreover, it is detrimental to output growth. Next, we study the implementation of a unit tax on carbon emissions. Contrary to previous results of the literature, its level here matters, as it provides the right incentives to abatement effort. When it is measured internal good, the optimal (Pigovian) carbon tax is increasing over time, while it is constant when expressed in utility. Moreover, it can be interpreted ex-post as a decreasing ad-valorem tax on the resource. Finally, we study the impact of the climate policy on the decentralized equilibrium: in particular, it fosters both the intensity and the rate of carbon abatement. In the near-term, it spurs research and output growth, while decreasing output level.

JEL-codes: O32 O41 Q20 Q32 (search for similar items in EconPapers)
Date: 2009-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Polluting Non-Renewable Resources, Carbon Abatement and Climate Policy in a Romer Growth Model (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:21940

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