'The Voracity Effect' and Climate Change: The Impact of Clean Technologies

Abstract

In the absence of a successful international cooperative agreement over the control of emissions there is a growing interest in the role that clean technologies may play to alleviate the climate change problem. Within a non-cooperative transboundary pollution game, we investigate, analytically and within a numerical example based on empirical evidence, the impact of the adoption of a cleaner technology (i.e., a decrease in the emission to output ratio). We show that countries may respond by increasing their emissions resulting in an increase in the stock of pollution that may be detrimental to welfare. This possibility is shown to arise for a significant and empirically relevant range of parameters. It is when the damage and/or the initial stock of pollution are relatively large and when the natural rate of decay of pollution is relatively small that the perverse effect of clean technologies is strongest. Cooperation over the control of emissions is necessary to ensure that the development of cleaner technologies does not exacerbate the free riding behavior that is at the origin of the climate change problem.

Keywords: transboundary pollution, renewable resource, climate change, clean technologies, differential games

JEL Classification: Q20, Q54, Q55, Q58, C73