Carbon prices and incentives for technological development

Abstract

There is concern that the carbon prices generated through climate policies are too low to create the incentives necessary to stimulate technological development. This paper empirically analyzes how the Swedish carbon dioxide (CO2) tax and the European Union emission trading system (EU ETS) have affected productivity development in the Swedish pulp and paper industry 1998-2008. A Luenberger total factor productivity (TFP) indicator is computed using data envelopment analysis. The results show that climate policy had a modest impact on technological development in the pulp and paper industry, and if significant it was negative. The price of fossil fuels, on the contrary, seems to have created important incentives for technological development. Hence, the results suggest that the carbon prices faced by the industry through EU ETS and the CO2 tax have been too low. Even though the data for this study is specific for Sweden, the models and results are applicable internationally. When designing policy to mitigate CO2 emissions, it is vital that the policy creates a carbon price that is high enough otherwise the pressure on technological development will not be sufficiently strong. (C) 2014 Elsevier Ltd. All rights reserved.

Keywords

CO2 tax; EU ETS; Luenberger total factor productivity; indicator; GMM

Published in

Journal of Environmental Management
2015, volume: 150, pages: 393-403
Publisher: ACADEMIC PRESS LTD- ELSEVIER SCIENCE LTD

SLU Authors

• Lundgren, Tommy

  • Department of Forest Economics, Swedish University of Agricultural Sciences
    
  • Umeå University

Global goals (SDG)

SDG7 Affordable and clean energy
SDG8 Decent work and economic growth

UKÄ Subject classification

Economics

Publication identifier

• DOI: https://doi.org/10.1016/j.jenvman.2014.12.015

Permanent link to this page (URI)

https://res.slu.se/id/publ/66856