Can International Technological Diffusion Substitute for Coordinated Global Policies to Mitigate Climate Change?

Author/Editor:

Philip Barrett

Publication Date:

June 25, 2021

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

In short, yes. I use a multi-region integrated assessment model with fuel-specific endogenous technical change to examine the impact of Europe and China reducing emissions to zero by mid-century. Without international technological diffusion this is insufficient to avoid catastrophic climate change. But when innovation can diffuse overseas, long-run temperature increases are limited to 3 degrees. This occurs because policy not only encourages green innovations but also dissuades dirty innovations which would otherwise spread. The most effective policy package in emissions-reducing regions is a research subsidy funded by a carbon tax, driven in the short term by the direct effect of the carbon tax on the composition of energy, and later by innovation induced by research subsidies. Green production subsidies are ineffective because they undermine incentives for innovation.

Series:

Working Paper No. 2021/173

Frequency:

regular

English

Publication Date:

June 25, 2021

ISBN/ISSN:

9781513585765/1018-5941

Stock No:

WPIEA2021173

Pages:

76

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