Impacts of CO2-taxes in an economy with niche markets and learning-by-doing

Gerlagh, R., van der Zwaan, B., Hofkes, M., & Klaassen, G. (2004). Impacts of CO2-taxes in an economy with niche markets and learning-by-doing. Environmental and Resource Economics 28 (3) 367-394. 10.1023/B:EARE.0000031059.83168.fb.

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In this paper, we analyse the impact of carbon taxes on emission levels, when niche markets exist for new carbon-free technologies, and when these technologies experience "learning-by-doing" effects. For this purpose, a general equilibrium model has been developed, DEMETER, that specifies two energy technologies: one based on fossil fuels and one on a composite of carbon-free technologies. Initially, the carbon-free technology has relatively high production costs, but niche markets ensure positive demand. Learning-by-doing decreases production costs, which increases the market share, which in turn accelerates learning-by-doing, and so forth. This mechanism allows a relatively modest carbon tax, of about 50 US$/tC, to almost stabilise carbon emissions at their 2000 levels throughout the entire 21st century. Sensitivity analysis shows that the required carbon tax for emission stabilisation crucially depends on the elasticity of substitution between the fossil-fuel and carbon-free technology.

Item Type: Article
Uncontrolled Keywords: Carbon taxes; Endogenous technological change; Energy; Niche markets
Research Programs: Transboundary Air Pollution (TAP)
Bibliographic Reference: Environmental and Resource Economics; 28(3):367-394 (July 2004)
Depositing User: IIASA Import
Date Deposited: 15 Jan 2016 02:16
Last Modified: 27 Aug 2021 17:18

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