@article{iiasa13988,
          volume = {66},
          number = {3},
           month = {March},
           title = {Second-Best Renewable Subsidies to De-carbonize the Economy: Commitment and the Green Paradox},
       publisher = {Springer Netherlands},
            year = {2017},
         journal = {Environmental and Resource Economics},
             doi = {10.1007/s10640-016-0086-3},
           pages = {409--434},
        keywords = {First best; Second best; Commitment; Markov-perfect; Ramsey growth; Carbon tax; Renewables subsidy; Learning by doing; Directed technical change},
             url = {https://pure.iiasa.ac.at/id/eprint/13988/},
            issn = {0924-6460},
        abstract = {Climate change must deal with two market failures: global warming and learning by doing in renewable energy production. The first-best policy consists of an aggressive renewables subsidy in the near term and a gradually rising and falling carbon tax. Given that global carbon taxes remain elusive, policy makers might have to rely on a second-best subsidy only. With credible commitment the second-best subsidy is higher than the social benefit of learning to cut the transition time and peak warming close to first-best levels at the cost of higher fossil fuel use in the short run (weak Green Paradox). Without commitment the second-best subsidy is set to the social benefit of learning. It generates smaller weak Green Paradox effects, but the transition to the carbon-free takes longer and cumulative carbon emissions are higher. Under first best and second best with pre-commitment peak warming is 2.1-2.3 {$\circ$}C, under second best without commitment 3.5 {$\circ$}C, and without any policy 5.1 {$\circ$}C above pre-industrial levels. Not being able to commit yields a welfare loss of 95\% of initial GDP compared to first best. Being able to commit brings this figure down to 7\%.},
          author = {Rezai, A. and van der Ploeg, F.}
}