Mads Greaker

Strategic environmental policy; eco-dumping or a green strategy?

Abstract The Porter hypothesis claims that a strong environmental policy best serves the interests of a nations export industry. While this hypothesis seems to be based on some form of bounded rationality, this paper argues that governments may have good reasons for setting an especially strong environmental policy even though firms are fully rational. If the available abatement technology turns the environment into an “inferior input”, competitiveness is spurred by a strong environmental policy. The government should take advantage of this, and set an especially strict emission quota or an especially high emission tax. The findings in the paper also has consequences for the desirability of international cooperation with respect to national environmental policy. If a strict environmental policy spurs competitiveness, the environment is better protected without cooperation.

Strategic environmental policy when the governments are threatened by relocation

Abstract This paper analyzes how the threat of relocation influences environmental policy. The stringency of environmental policy is determined in a game between two governments. There is one firm in each jurisdiction, and both firms threaten to relocate their production to the other jurisdiction. Because there is asymmetric information about the cost of relocation, the governments do not know the credibility of the threat. We compare the outcome of this game with the outcome of a game in which relocation is not possible. We find that the threat of relocation can increase both the level of environmental regulation and welfare. The profit tax level proves to be the most decisive for the result; that is, the higher the profit tax level, the lower the level of environmental regulation.

Carbon Taxes and Innovation without Commitment

Abstract Climate mitigation policy should be imposed over a long period, and spur innovation of new technologies in order to make stabilization of green house gas concentration economically feasible. The government may announce current and future policy packages that stimulate current R&D in climate-friendly technologies. However, once climate-friendly technologies have been developed, the government may have no incentive to implement the pre-announced future policies, that is, there may be a time inconsistency problem. We show that if the government can optimally subsidize R&D today, there is no time inconsistency problem. Thus, lack of commitment is not an argument for higher current R&D subsidies than the first-best subsidy. If the offered R&D subsidy is lower than the optimal subsidy, the current (sub-game perfect) carbon tax rate exceeds the first-best carbon tax rate.

A credible compliance enforcement system for the climate regime

The compliance enforcement system of the Kyoto Protocol provides only weak incentives for Parties to comply with their commitments. For example, the penalties for non-compliant countries are not legally binding, and moreover, there is no second-order punishment for those countries that fail to implement them. Thus, a Party can simply refuse to comply without consequence. The alternative compliance enforcement systems that have been proposed in the literature also face substantial problems. A simple, flexible, potent, and credible compliance enforcement system for a post-Kyoto climate agreement, based on deposits, is proposed here: at ratification, each country deposits a significant amount of money, and continues to do so in the preparation stage each year until the start of the commitment period. At the end of this period, those countries that meet their emissions limitation targets receive a full refund of their deposit, while those that fail to do so forfeit part or all of it. A simplified two-country model of the deposit system and a numerical example of an agreement involving the US, Japan, Russia, and Europe is also provided. If each countrys deposit is no less than its abatement costs, there is a strong incentive for participating countries to avoid non-compliance.

Environmental Policy and the Direction of Technical Change

Should governments direct research and development (R&D) away from “dirty” technologies towards “clean” ones? How important is this compared to carbon pricing? We address these questions with the introduction of two model features to the literature on directed technological change and the environment. We introduce decreasing returns to R&D, and allow future carbon taxes to influence current R&D decisions. Our results suggest that governments should prioritize clean R&D. Dealing with major environmental problems requires an R&D shift towards clean technology. However, in the case where most researchers are working with clean technology, both productivity spillovers and the risks of future replacement increase. Consequently, the gap between the private and social values of an innovation is greatest for clean technologies.

Climate Policy: Costs and Design : A survey of some recent numerical studies

There is a large and growing literature focusing on economic issues related to climate change and climate policies. This report presents a discussion of some of the recent studies. The focus is on ...