Kiel Working Papers, Kiel Institute for World Economics
No 1590:
Climate Policy, Technology Choice, and Multiple Equilibria in A Developing Economy
Daiju Narita
Abstract: Control of carbon dioxide emissions in developing
countries is becoming a key issue in the international climate policy. A
critical element for achieving substantial emission reduction in those
countries is the installment of new energy technologies. Drawing on the
framework of poverty-trap models in development economics, we discuss how
climate policy affects the transition of energy technologies in a
developing economy. We show that while a moderate carbon policy could
promote transition to low-emission energy technology, too stringent policy
in a relatively poor economy may rather hinder the process by reducing the
economy’s financing capacity as to building new energy infrastructure –
there, the barrier is not the long-run costs of the new technology but the
availability of financial resources for initial investment, which could be
constrained not only by the domestic saving but also by the imperfection of
credit market. The possibility of such a trapping may provide a
justification for financial support towards the deployment of alternative
energy technologies in low-income economies
Keywords: Climate policy, technology choice, credit market imperfection, climate funds; (follow links to similar papers)
JEL-Codes: O16,; O33,; Q54,; Q56; (follow links to similar papers)
21 pages, January 2010
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