Top PDF Induced Technological Change Under Carbon Taxes

Induced Technological Change Under Carbon Taxes

Induced Technological Change Under Carbon Taxes

This section presents the basic elements of our model for energy production and innovation, for one energy source. Figure 1 presents an overview of the model. We model energy as a produced good, as depicted in the central column of the figure, using capital and labor as production factors. Overall productivity of capital and labor depends on knowledge gained through experience, so- called learning by doing labeled with symbol b, pictured through the lower feed-back loop on the right, and knowledge produced through research carried out by innovators, depicted at the left side of the figure and labeled with symbol a. We distinguish a privately owned research-based knowledge stock – for its use producers have to pay a license fee – from a freely available public knowledge stock. Both private and public research-based technology stocks are described as an expanding library of ideas that can be used in the production process. Innovation is a cumulative process; each innovation builds on the stock of existing knowledge. Energy producers can make use of all past and present innovations, that is the total stock of knowledge, and pay a license fee to all innovators that have developed and own the innovations that are currently in use. In turn, the innovators receive the license fees from all present and future energy producers that use their innovations. Both innovators and producers of final goods take prices as given. We do not consider product variety and price setting under monopolistic competition as in many other endogenous-growth models (see Barro and Sala-i-Martin 1995 for an overview). For fossil fuels, we assume that current production exhausts the resource and this, in turn, decreases future factor productivity, pictured through the second feed-back loop on the right side of the figure. Stated in other words, through resource exhaustion, current production increases the future effort required to maintain a certain output level.
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Technological Change and Carbon Markets*

Technological Change and Carbon Markets*

taxes provide a stronger incentive to invest in R&D as compared to freely distributed allowances. The reason is that the allowance price falls with the diffusion of new technology, thus implying that the adopting firms will not be willing to pay as much for the innovation under the (now cheaper) allowances as under a (constant) emis- sion tax. Fischer et al. [7] show that if the (single) inno- vator is able to exercise market power, this can raise the gains to innovation in that a lower allowance price means that the innovator does not need to pay as much for the rest of its emissions. However, this benefit only emerges in the case of auctioned allowances. The choice between auctioned allowances and an emission tax is however ambiguous. The efficient policy will depend, in part, on the slope of the marginal damage curve 2 , and on how imperfectly the innovative technology can be imitated. For instance, emission taxes provide more innovation incentive if imitation is difficult, while auctioned allow- ances perform better in the case with substantial knowl- edge spillovers to the adopting firms [8].
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Four aspects of technological change

Four aspects of technological change

In doing so, this paper relates to the growing literature on the interaction between growth and the environment. While early strands of the literature, among others e.g. Gradus and Smulders (1993) and Stokey (1998), emphasize the trade-off between higher growth and a “healthier” environment, this paper, in contrast, explicitly takes into ac- count the response of technological progress itself. This effect substantially reduces the barriers to switch away from polluting technologies to a sustainable growth path. Em- pirical evidence for the induced innovation channel comes from Newell et al. (1999) and Popp (2002), who exploit the evolution of energy prices and the direction of research. Al- lowing for the development of non-polluting “backstop” technologies releases the tension between higher growth and less pollution. This idea is explored further by Acemoglu, Aghion, Burstzyn and Hemous (2012) (AABH henceforth), who show that in the absence of regulations, all research investments are channelled towards the dirty sector. In a one- country setup representing the developed world, they characterize the optimal policy that prevents such a disaster as a combination of a carbon tax and research subsidies to the clean sector.
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Environmental tax reform and induced technological change

Environmental tax reform and induced technological change

However, theoretical studies using general equilibrium models such as Bovenberg and de Mooij (1994), Parry (1995) and Goulder et al. (1997) show that environmental tax reform exacerbates rather than improves economic efficiencies. This result is driven by two opposite welfare effects. First, by replacing distortionary taxes, environmental tax reform can decrease preex- isting distortions. This is called the revenue-recycling effect, which improves welfare. Second, a price rise of final goods from the environmental tax makes households substitute the final goods for leisure and, thereby, decreases labor supply. By shifting the labor supply curve to the left, this path decreases gov- ernment revenues from a labor income tax and increases marginal distortions per unit of income tax revenue. This effect is known as the tax-interaction ef- fect, which decreases welfare. Previous studies reveal that the tax-interaction effect is greater than the revenue-recycling effect under plausible conditions, and that the double dividend cannot be obtained. 1
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A MERGE Model with Endogenous Technological Change and the Cost of Carbon Stabilization

A MERGE Model with Endogenous Technological Change and the Cost of Carbon Stabilization

The Innovation Modelling Comparison Project (IMCP) is an effort to present the state of the art in modelling technological change. The project brings together a variety of different approaches to the inclusion of technological change in global macroeconomic, Integrated Assessment and energy system models. In particular, the project aims to compare and contrast the cost and investment time-paths that could lead to stabilization at 450, 500, 550 ppmv carbon dioxide by 2100, and to explore sensitivities to different modelling approaches and technical assumptions. The PSI group has developed for the Swiss NCCR-Climate Program on “Climate Variability and Risk” Integrated Assessment Models (IAMs) to simulate policies to aid in climate-change mitigation. We report herein model changes and results from a version of MERGE, Manne et al. (1995), Kypreos (2000), Manne and Richels (2002), Kypreos (2005) that supports endogenous and induced technological learning in the energy sector.
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Impact Assessment of Emissions Stabilization Scenarios with and without Induced Technological Change

Impact Assessment of Emissions Stabilization Scenarios with and without Induced Technological Change

Environmental and climate interventions create constraints and incentives that affect the process of technological change. The imposition of climate control instruments can stimulate invention and innovation processes. Invention and innovation practices are carried out primarily in private firms through increased research and development (R&D). A technological innovation can become widely available by technological diffusion processes. The induced innovation hypothesis recognizes R&D investments as profit-motivated investments stimulated by relative price changes. Climate policy measures that increase the price of fossil fuels augment the market for low-carbon technologies. This effect creates incentives for increased R&D expenditures in the sectors affected by climate change. Increased R&D expenditures bring about technological changes that lower the costs of low- carbon technologies. These effects reduce compliance costs and can lead to increased profits (Porter and van der Linde (1995)). However, investment in R&D could also “crowd out” other investments (Gray and Shadbegian (1998)). This would reduce firms’ profits. Econometric tests and simulation results confirm these ambiguous results. Jaffe and Palmer (1997) find that a carbon tax reduces aggregate R&D, causing a decline in knowledge accumulation and the rate of technological progress, which results in a deterioration of income and output. Recent findings, however, illustrate that environmental policies can have a strong positive feedback on innovation and may induce beneficial economic outcomes (Popp (2001 and 2002)).
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Emissions trading and technological change

Emissions trading and technological change

When the UK government announced its Climate Change Levy in March 1999, a group of thirty organisations (mostly large businesses) formed the UK Emissions Trading Group. Their immediate objective was to persuade the government to adopt an emissions trading scheme instead of the new tax, and their broader aim was to influence future EU regulations in favour of carbon trading. The message was well-received by the new Labour government, which wanted to make London the financial hub of the new market should the EU be swayed toward emissions trading (Meckling, 2011). The UK Emissions Trading Scheme was finally launched in 2002 as a supplementary policy to the Levy, but few firms participated, most easily met or even overshot their emissions abatement targets, and ultimately the scheme appears rather to have subsidised a handful of firms to undertake voluntary emissions reductions (Smith & Swierzbinski, 2007). By way of contrast, the Climate Change Levy does appear to have induced firms paying the full rate to reduce energy use by 10% and increase patenting for low-carbon technologies without compromising firms’ economic performance (Martin et al., 2009; Martin & Wagner, 2009), while simultaneously raising more than £800 million of revenue a year for the British government (Cambridge Econometrics et al., 2005). Yet somehow seeing a real- life carbon market in the UK seems to have had a greater impact on the rest of Europe than seeing the market’s actual performance. The apparent success of the US Acid Rain Program, moreover, seemed to offer compelling evidence that emissions trading could work in practice, even if the small-scale carbon market experiments so far had had less success.
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Induced Technological Change under Technology Competition

Induced Technological Change under Technology Competition

Yet, our analysis proves more optimistic when there are competing resources, e.g. when we aim at carbon dioxide emission reductions through a substitution away from carbon-rich energy sources toward carbon-poor or carbon-free energy sources. In this setting, ITC acts as a powerful multiplier for the price elasticity of resource use. Moreover, it is possible that multiple balanced growth paths exist, each with another dominant energy technology. Indeed, if the current energy system is biased towards fossil-fuel based energy sources, because of spill-over effects, an alternative (imaginary) energy system in which the carbon-free energy sources have traded in place with fossil-fuel energy sources can exist. Then, the configuration of multiple steady states applies to the current energy system and the economy exhibits path dependency. A pessimistic feature of this configuration is that the current economy is locked-in in fossil-fuel technologies. Carbon-free technologies will not gain a substantial market share under their own steam. The optimist feature is that, nonetheless, a carbon tax may render the current fossil-fuel dominance of the energy system unstable, setting in motion a major transition.
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Accounting For Deferred Taxes:  Time For A Change

Accounting For Deferred Taxes: Time For A Change

This study examines the theory underlying the current accounting and reporting standards for deferred taxes. Given the goal of global accounting convergence and under the proposed condorsement approach, the FASB and the IASB have a historic opportunity to revise the existing deferred tax accounting standards. Thus, it is warranted to illustrate the financial consequences of using the proposed flow-through (where tax expense is equal to the statutory tax liability) approach versus the asset-liability method of accounting for deferred taxes. We achieve this objective by computing the change in the debt-to-equity (DTE) ratios for the 2004-2010 period when net deferred tax balances are eliminated and corresponding adjustments are made in the total liability and stockholders equity balances. Based on our observations, we propose that the underlying issue in accounting for deferred taxes is the unit problem and argue that deferred taxes do not represent assets and liabilities as defined by accounting standards.
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GROWTH AND TECHNOLOGICAL CHANGE IN CUBA

GROWTH AND TECHNOLOGICAL CHANGE IN CUBA

The paper is organized as follows. The first section provides a brief overview of the Cuban economy, in- cluding some macroeconomics indicators, productive structure, international trade, and human capital in- dicators. The intent of this section is to give some background of Cuba’s economy to have a better un- derstanding of Cuba’s initial economic conditions and its process of economic growth during the period 1960-1988. The second section contains a brief re- view of the literature dealing with economic growth, technological change and human capital. The third section is the core of the paper. It tries to explain growth and technological change in Cuba; techno- logical change is estimated using the traditional methodology to estimate TFP (Solow, 1957). The contribution of factors to Cuban economic growth is also estimated. The fourth section contains an econo- metric estimation of the economy of scale of the Cu- ban economy and of some economic sectors (agricul- ture and industry). The fifth section compares Cuban technological change with other world re- gions. The last section contains some conclusions.
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Technological change and the wealth of nations

Technological change and the wealth of nations

We consider two aspects of globalization: trade in goods and international labor mobility (migration). To study the former, we start by relaxing the assumption that …nal goods are not traded in the benchmark two-factor model of endogenous technical change. We then use the model to illustrate the e¤ects of both North-South and North- North trade on technology and relative income. A key …nding of this exercise is to show that, as argued by Acemoglu and Zilibotti (2001) and Epifani and Gancia (2008a), globalization can lead to skill-biased technical change that bene…ts disproportionately skill-abundant countries. Next, we study how trade, specialization and migration af- fect the world income distribution in a single factor version of the model. We will see that, once technology is endogenized, trade and migration can have both equalizing and unequalizing e¤ects. In particular, as emphasized by Acemoglu and Ventura (2002), trade can promote technological convergence across countries through changes in rela- tive prices (the terms of trade). International labor mobility, instead, can either amplify or dampen income and technology di¤erences, depending on the value of the elasticity of substitution between goods.
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Democratization is the determinant of technological change

Democratization is the determinant of technological change

Moreover, since the democracy of European countries as well as of the United States of America was, before 1815, at an early stage, innovations had minor effects on economic growth, real wages and living standards. When the democratization processes of countries entered a steadier state, another wave of innovations created – in a more global and democratic Europe – a new economic wind which, after the 1850s, increased productivity growth, income per capita and real wages. This was a period of unprecedented growth, and achieved triumphs ... equal, if not superior, to all centuries combined (Smith, 1994). The co- evolution of democratization and technical change has been assuming new forms in the current economy and the most important development is the Information and Communication Technologies Revolution (Devezas et al., 2005). As a matter of fact, the Third wave of democratization (1980s-1990s) generated a receptive political and economic environment to absorb a new techno-economic paradigm and the benefits of converging technologies (Freeman and Louçã, 2001).
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Technological Change and Immigration Policy

Technological Change and Immigration Policy

In general, the theory predicts that under any skill-biased technological change, the high skilled and low skilled individuals of less developed countries will be attracted by rapidly growing democracies. This in turn would make the skill composition of the source countries more homogeneous and reduce the low-middle skill wage-differential until it is equalized between all, the countries of origin and the countries of destination.

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Population Ageing and Technological Change

Population Ageing and Technological Change

It is common in CGE modelling to assume some long-run “average” rate of exogenous technological change or productivity growth. It is important to point out that there is no productivity growth in the model. That is, productivity is assumed not to change in the simulation period. While this may not be realistic, it is assumed in order to highlight the economic impact of changing population size and age structure, which is the main aim of the analysis. It is worth noting that the model is a simulation model and not a forecasting model. We believe that assuming no productivity growth helps isolate the effect of the “demographic shock” of population ageing. It is also worth noting that any long-run assumption about productivity growth would be arbitrary since we have little idea of what future technological changes or human capital enhancements would generate productivity increases, especially in an ageing context.
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The Rapid Rise of Supermarkets in Developing Countries: Induced Organizational, Institutional, and Technological Change in Agrifood Systems

The Rapid Rise of Supermarkets in Developing Countries: Induced Organizational, Institutional, and Technological Change in Agrifood Systems

On the “supply capacity” side, there was a deluge of FDI induced by the policy of full or partial liberalization of retail sector FDI undertaken in many countries in the three regions in the 1990s and after (e.g. partial liberalization of retail trade in China in 1992, with full liberalization of the sector scheduled for 2004; Brazil, Mexico, Argentina in 1994; various African countries via South African investment after apartheid ended in the mid 1990s; Indonesia in 1998; India in 2000). Overall FDI grew 5- to 10-fold over the 1990s in these regions (UNCTAD 2001) and growth of FDI in food retailing mirrored that overall growth. In addition, retail procurement logistics technology and inventory management (such as efficient consumer response, ECR, an inventory management practice that minimizes inventories-on-hand, and use of internet and computers for inventory control and supplier–retailer coordination) were revolutionized in the 1990s. This was led by global chains and is diffusing now in developing regions through knowledge transfer and imitation and innovation by domestic supermarket chains.
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Fiscal Interactions and the Case for Carbon Taxes over Grandfathered Carbon Permits

Fiscal Interactions and the Case for Carbon Taxes over Grandfathered Carbon Permits

A second wave of papers revealed another linkage with the labor market that undermines the double-dividend argument (e.g., Bovenberg and de Mooij 1994; Bovenberg and van der Ploeg 1994b; Bovenberg and Goulder 2002; Parry 1995, 1997). A carbon tax increases the price of electricity, gasoline, and other energy goods; in turn, this drives up the prices of products in general, since they require energy inputs in production. The general increase in the price level reduces real household wages, which should slightly reduce employment given econometric evidence that lower real household wages lead to lower labor force participation and work effort. This leads to an efficiency loss of t , where is the (small) reduction in labor supply (this is the addition to the deadweight loss triangle in Figure 2 from a slight shift in of the labor supply
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Carbon Pricing: Transaction Costs of Emissions Trading vs. Carbon Taxes

Carbon Pricing: Transaction Costs of Emissions Trading vs. Carbon Taxes

Much of the literature acknowledges the lack of a generally accepted definition and the wide use of the concept of “transaction costs.” As pointed out by Krutilla and Krause (2010), in the environmental economics field, the term “transaction costs” first emerged in the literature on the Coase theorem to refer to the “costs of market transactions” following a rights assignment. Yet over the years the concept has been applied more expansively to account for the fact that environmental regulations establish use or quasi-ownership rights to polluters who are generally qualified for and subject to regulatory review or modification. In this context, “transaction costs” refer to the costs of the regulatory requirements implementing the policy objective. Moreover, it is acknowledged that the regulatory design can be used to reduce transaction costs by two means: excluding smaller participants who pay disproportionately large transaction costs in relation to their pollution, and choosing the point of obligation that minimizes transaction costs (Krutilla and Krause 2010, McCann 2013). For instance, when it comes to the climate change discussion, the general view is that regulating CO 2 emissions upstream by means of a CO 2 tax yields lower transaction costs than regulating polluters downstream through tradable emissions permits since the number of emitters is larger than the number of firms producing or importing fuel (Crals and Vereeck 2005, Metcalf and Weisbach 2009 and Mansur 2012). Moreover, the implementation costs are considered to be lower for a carbon tax than for a tradable permits system since the former makes use of existing social institutions, like tax-collecting organs and tax systems (Pope and Owen 2009, Kerr and Duscha 2014).
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Technological change, bargaining power, and wages

Technological change, bargaining power, and wages

Science fiction has explored this portion of robot story space both well and badly. There are many examples of robots doing particular jobs, but human characters normally interact with them one at a time. This is a way of evading the broader implications of the kind of capability that a robot secretary, say, or even a robot waiter or cab driver, imply. One example, from the exemplary author of robot stories Isaac Asimov, can stand for many others. In his late novel Bicentennial Man, Asimov re–works the robot becoming (as good as) human theme yet again, relating the long career of a robot butler who gradually assumes more and more human qualities, eventually starring in a court case in which he is accorded full human rights. But although the story covers 200 years, the rest of society appears unaffected by the advent of such advanced robots, or the technological descendants which would presumably appear over such a time span. This rather glaring deficiency may be due simply to lack of interest, or to a combination of Asimov’s literary limitations together
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Knowledge in pollution saving technological change

Knowledge in pollution saving technological change

required that new exhaust pipe emission standards be met through two smaller step changes, with deadlines in 1994 and 2004, rather than through one big step change by a single date. In the spatial dimension policymakers wrote into the 1990 Amendments a provision that allowed the automobile manufacturers to differentiate the vehicles they produced for California and for the other 49 states. This introduced spatial differentiation by only requiring that the vehicles meeting the most stringent standards (so-called ultra- low emission vehicles (ULEVs) and zero emission vehicles (ZEVs)) to be sold in California where the damage costs were generally highest. This means that to the extent that the automobile manufacturers needed to perform new R&D to bring ULEVs and ZEVs into existence, they only had to do it for vehicles sold in California, and not for all the vehicles they sold throughout the entire nation. In terms of abatement methods, a ‘fuel neutrality’ provision in the 1990 Amendments let the automobile manufacturers design ULEVs and ZEVs around virtually any clean alternative fuel or fuel combination they chose. This left the decision process over what would eventually be the dominant clean vehicle fuel to market forces. The automobile manufacturers could perform R&D to develop new-to-the-world fuels if they wanted, but this was not a requirement of the regulation, and they could equally choose to fall back on clean fuels already in existence. In the inter-firm dimension, the Amendments set out new requirements on the content (benzene) and characteristics (volatility) of fuels for the most heavily polluted regions in the country. The legislation created a program allowing oil companies, fuel importers, fuel refiners and fuel blenders to earn tradable credits for exceeding the mandatory fuel specifications. The first subsection above already discussed the effect of economic instruments like permit trading systems on R&D spending levels. On the whole these changes in the regulatory approach illustrate how much more flexible the regulatory regime relating to automobile emission control became over time.
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Skill-biased technological change in Vietnam

Skill-biased technological change in Vietnam

In Vietnam, this controversy is shown by low total factor productivity (TFP) growth rates. According to the Ministry of Labour Invalids and Social Affairs Vietnam and International Labour Organization (2010), the contribution of total factor productivity increases when gross domestic product (GDP) growth is about 26% (in TFP, growth does not include increased labour quality), but the contribution of capital investment is over 60% of GDP growth in Vietnam. The evidence of the impact of technological change on both the economic and labour markets have not been explored in Vietnam. Sakellarious and Patrinos (2003) indicated that skill premiums have been rising in their study on the impact of computer use on wages in Vietnam. Sakellarious and Patrinos (2003) concluded that the recent technological change changed demand for educated, skilled labour. Moreover, Konstadakopulos (2005) found that information and communications technology has penetrated to export-oriented sectors based in areas where the internet connection is higher in
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