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

Grimaud, André, Magné, Bertrand and Rougé, Luc (2009) Polluting Non-Renewable Resources, Carbon Abatement and Climate Policy in a Romer Growth Model. TSE Working Paper, n. 09-023

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Official URL: http://tse-fr.eu/pub/21940

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.

Item Type: Monograph (Working Paper)
Language: English
Date: March 2009
JEL codes: O32 - Management of Technological Innovation and R&D
O41 - One, Two, and Multisector Growth Models
Q20 - General
Q32 - Exhaustible Resources and Economic Development
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 18 Jan 2012 06:00
Last Modified: 07 Mar 2018 13:22
OAI ID: oai:tse-fr.eu:21940
URI: http://publications.ut-capitole.fr/id/eprint/3219

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