Generational Welfare Under a Climate‐Change Policy with Induced Innovation

Abstract:     
We develop a climate–economy model with generational heterogeneity and with the potential for climate‐policy‐induced technological change. We use the model to assess the distributional implications of climate policies that recycle generated revenues to finance research and development in the energy sector. We show that while the investments of climate‐policy rents that are used to accelerate innovation are likely to be welfare‐improving, as long as significant market failures exist, they are also likely to exacerbate the distributional inequities created across generations by climate‐change policies.

Number of Pages in PDF File: 33

Keywords: Environmental policy, research and development, technological change

JEL Classification: O3, Q42, Q54

Accepted Paper Series