Carolyn Fischer, Senior Fellow, Resources for the Future (RFF), Washington, DC (Fischer@rff.org). Thomas Sterner, Professor of Environmental Economics, University of Gothenburg, P.O. Box 640 40530, Gothenburg, Sweden; University Fellow, RFF (Thomas.firstname.lastname@example.org).
Climate Policy, Uncertainty, and the Role of Technological Innovation
Article first published online: 27 MAR 2012
© 2012 Wiley Periodicals, Inc.
Journal of Public Economic Theory
Volume 14, Issue 2, pages 285–309, March 2012
How to Cite
FISCHER, C. and STERNER, T. (2012), Climate Policy, Uncertainty, and the Role of Technological Innovation. Journal of Public Economic Theory, 14: 285–309. doi: 10.1111/j.1467-9779.2011.01543.x
Financial support from the Swedish Research Councils Formas and Mistra (through its climate program CLIPORE/INDIGO), as well as the Environmental Economics project at the Centre for Advanced Study (CAS), Norwegian Academy of Science and Letters, is gratefully acknowledged. We are indebted to Michael Hoel for the invitation to CAS and for valuable comments and to Miguel Quiroga for research assistance. Thanks also for valuable comments from Antoine d'Autume, Nicholas Stern, Roger Guesnerie, and Bill Nordhaus at the Collège de France Colloque June 2010.
- Issue published online: 27 MAR 2012
- Article first published online: 27 MAR 2012
- Received September 16, 2010; Accepted November 28, 2011.
We study how uncertainty about climate change severity affects the relative benefits of early abatement and a portfolio of research and development (R&D) in lowering future abatement costs. Optimal early abatement depends on the curvature of the marginal benefit and marginal abatement cost (MAC) functions and how the uncertain parameter affects marginal benefits. R&D in a particular technology depends on whether uncertainty increases early abatement; whether investment lowers marginal costs for that technology; whether R&D lowers the slope of that technology's MAC function; and the shape of that technology's MAC function. We illustrate, focusing on the role of backstop technologies.