Permit Markets, Carbon Prices and the Creation of Innovation Clusters
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Date
2021-08
Publication Type
Journal Article
ETH Bibliography
yes
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Abstract
Innovation clusters combining public and private effort to develop breakthrough technologies promise greater technological advances to slow down climate change. We use a multi-country model with an emission trading system to examine whether and how international climate policy can incentivize countries to create such innovation clusters. We find that a minimal carbon price is needed to attract applied research firms, but countries may nevertheless fail to invest in complementary research infrastructure. We construct a mechanism that leads to innovation clusters when emissions targets are set before uncertainty surrounding technological developments is resolved. It is a combination of low permit endowments for the country with the lowest costs to build the needed infrastructure, compensation for this country by profits from permit trade, and maximal possible permit endowments for the remaining countries. We outline how the EU-ETS can be further refined according to this mechanism.
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Publication status
published
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Journal / series
Volume
65
Pages / Article No.
101229
Publisher
Elsevier
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Edition / version
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Software
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Date collected
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Subject
International permit markets; Carbon prices; Innovation clusters; Research infrastructure; Applied R&D; Climate change mitigation; Externalities
Organisational unit
03729 - Gersbach, Hans / Gersbach, Hans
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Has part: https://doi.org/10.3929/ethz-b-000302729