Mirage on the Horizon: Geoengineering and Carbon Taxation Without Commitment
MIT Department of Economics Working Paper No. 18-04
68 PagesPosted: 9 Mar 2018
Massachusetts Institute of Technology (MIT) - Department of Economics;
Centre for Economic Policy Research (CEPR); National Bureau of Economic
Massachusetts Institute of Technology (MIT)
Date Written: March 6, 2018
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.
Keywords: carbon tax, geoengineering, environment, innovation, time
JEL Classification: Q01, Q4, Q54, Q55, Q58, O30, O31, O33, C65
Acemoglu, Daron and Rafey, Will, Mirage on the Horizon: Geoengineering and
Carbon Taxation Without Commitment (March 6, 2018). MIT Department of
Economics Working Paper No. 18-04. Available at SSRN:
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