NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Mirage on the Horizon: Geoengineering and Carbon Taxation Without Commitment

Daron Acemoglu, Will Rafey

NBER Working Paper No. 24411
Issued in March 2018
NBER Program(s):Environment and Energy Program, Economic Fluctuations and Growth Program, Political Economy Program

We show that, in a model without commitment to future policies, geoengineering breakthroughs can have adverse environmental and welfare effects because they change the (equilibrium) carbon taxes. In our model, energy producers emit carbon, which creates a negative environmental externality, and may decide to switch to cleaner technology. A benevolent social planner sets carbon taxes without commitment. Higher future carbon taxes both reduce emissions given technology and encourage energy producers to switch to cleaner technology. Geoengineering advances, which reduce the negative environmental effects of the existing stock of carbon, decrease future carbon taxes and thus discourage private investments in conventional clean technology. We characterize the conditions under which these advances diminish - rather than improve - environmental quality and welfare.

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Document Object Identifier (DOI): 10.3386/w24411

 
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