Green Paradox and Directed Technical Change: The Effects of Subsidies to Clean R&D

Daubanes, Julien, Grimaud, André and Rougé, Luc (2012) Green Paradox and Directed Technical Change: The Effects of Subsidies to Clean R&D. TSE Working Paper, n. 12-337

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Official URL: http://tse-fr.eu/pub/26215

Abstract

The "green paradox" literature points out that environmental policies which are anticipated to become gradually more stringent over time may induce a more rapid extraction of fossil fuels, thus having a detrimental effect to the environment. The manifestation of such phenomena has been extensively studied in the case of taxes directly applied to the extraction of a polluting non-renewable resource and of subsidies applied to its non-polluting substitutes. This paper examines the effects of subsidies to "clean" R&D activities, aimed to improve the productivity of non-polluting substitutes. We borrow standard assumptions from the directed-technical-change literature to take a full account of the private incentives to perform R&D and of the patterns of complementarity/substitutability between dirty resource and clean non-resource sectors. We show that a gradual increase in relative subsidies to clean R&D activities does not have the adverse green paradox effect, which contradicts an earlier made conjecture. Instead, the presence of several R&D sectors implies arbitrages which give rise to other quite paradoxical results. However substitutable or complementary sectors are, and whatever the induced technological bias is, clean-R&D-support policies always enhance the long-run productivity of the resource and thus result in a less rapid extraction.

Item Type: Monograph (Working Paper)
Language: English
Date: August 2012
JEL codes: O32 - Management of Technological Innovation and R&D
O41 - One, Two, and Multisector Growth Models
Q32 - Exhaustible Resources and Economic Development
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 09 Jul 2014 17:28
Last Modified: 07 Mar 2018 13:22
OAI ID: oai:tse-fr.eu:26215
URI: http://publications.ut-capitole.fr/id/eprint/15384

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