Climate change must deal with two market failures: global warming and learning by doing in renewable energy production. The first-best policy consists of an aggressive renewables subsidy in the near term and a gradually rising and falling carbon tax. Given that global carbon taxes remain elusive, policy makers might have to rely on a second-best subsidy only. With credible commitment the second-best subsidy is higher than the social benefit of learning to cut the transition time and peak warming close to first-best levels at the cost of higher fossil fuel use in the short run (weak Green Paradox). Without commitment the second-best subsidy is set to the social benefit of learning. It generates smaller weak Green Paradox effects, but the transition to the carbon-free takes longer and cumulative carbon emissions are higher. Under first best and second best with pre-commitment peak warming is 2.1-2.3 °C, under second best without commitment 3.5 °C, and without any policy 5.1 °C above pre-industrial levels. Not being able to commit yields a welfare loss of 95% of initial GDP compared to first best. Being able to commit brings this figure down to 7%.
| Identifer | oai:union.ndltd.org:VIENNA/oai:epub.wu-wien.ac.at:5330 |
| Date | 03 1900 |
| Creators | Rezai, Armon, van der Ploeg, Frederick |
| Publisher | Springer Netherlands |
| Source Sets | Wirtschaftsuniversität Wien |
| Language | English |
| Detected Language | English |
| Type | Article, PeerReviewed, info:eu-repo/semantics/article |
| Format | application/pdf |
| Rights | Creative Commons: Attribution 4.0 International (CC BY 4.0), info:eu-repo/semantics/openAccess |
| Relation | http://dx.doi.org/10.1007/s10640-016-0086-3, http://link.springer.com/journal/10640, http://cordis.europa.eu/project/rcn/98935_en.html, http://epub.wu.ac.at/5330/, info:eu-repo/grantAgreement/EC/FP7/269788/EU/COMBATING CLIMATE CHANGE: Political economy of Green Paradoxes/GP |
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