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NATIONAL BUREAU OF ECONOMIC RESEARCH

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NBER Working Papers and Publications

April 1998Optimal CO2 Abatement in the Presence of Induced Technological Change
with Lawrence H. Goulder: w6494
This paper explores the significance of policy-induced technological change for the design of carbon-abatement policies. We derive analytical expressions characterizing optimal CO2 abatement and carbon tax profiles under different specifications for the channels through which technological progress occurs. We consider both R&D-based and learning-by-doing-based knowledge accumulation, and examine each specification under both a cost-effectiveness and a benefit-cost policy criterion. We show analytically that the presence of induced technological change (ITC) implies a lower time profile of optimal carbon taxes. The impact of ITC on the optimal abatement path varies. When knowledge is gained through R&D investments, the presence of ITC justifies shifting some abatement from the present to...

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