Department of Economics
77 Massachusetts Avenue
Cambridge, MA 02138
Institutional Affiliation: Massachusetts Institute of Technology
NBER Working Papers and Publications
|March 2018||Mirage on the Horizon: Geoengineering and Carbon Taxation Without Commitment|
with : w24411
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 advanc...