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Carbon Prices and Incentives for Technological Development

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Abstract
How to significantly decrease carbon dioxide emissions has become one of the largest challenges faced by modern society. The standard recipe prescribed by most economists is to put a price on carbon, either through a tax or through emissions trading. Such measures can reduce emissions cost-effectively and create incentives for technological development. There is, however, a growing concern that the carbon prices generated through the European Union emission trading system (EU ETS) have been too low to create the incentives necessary to stimulate technological development. This paper empirically analyzes how the Swedish carbon dioxide tax and the 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. How the policy measures affect TFP is assessed using a system generalized method of moments estimator. The results show that climate policy had a modest impact on technological development in the pulp and paper industry, and if significant it has been negative. The price on fossil fuels, on the contrary, seems to have created important incentives for technological development. Hence, results suggest that the carbon prices faced by the industry through EU ETS and the carbon dioxide tax have been too low.

Suggested Citation

  • Lundgren, Tommy & Marklund, Per-Olov & Samakovlis, Eva & Zhou, Wenchao, 2013. "Carbon Prices and Incentives for Technological Development," CERE Working Papers 2013:4, CERE - the Center for Environmental and Resource Economics.
    • Handle: RePEc:hhs:slucer:2013_004
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    File URL: http://www-sekon.slu.se/~gbost/CERE_WP2013-4.pdf
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    References listed on IDEAS

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    Cited by:

    1. Brännlund, Runar & Lundgren, Tommy & Söderholm, Patrik, 2015. "Convergence of carbon dioxide performance across Swedish industrial sectors: An environmental index approach," Energy Economics, Elsevier, vol. 51(C), pages 227-235.
    2. Brännlund, Runar & Lundgren, Tommy & Marklund, Per-Olov, 2014. "Carbon intensity in production and the effects of climate policy—Evidence from Swedish industry," Energy Policy, Elsevier, vol. 67(C), pages 844-857.

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    More about this item

    Keywords

    CO2 tax; EU ETS; Luenberger productivity indicator; GMM;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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