Discussion Papers no. 644

Output-based allocation and investment in clean technologies

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Allocation of emission allowances may affect firms' incentives to invest in clean technologies. In this paper we show that so-called output-based allocation tends to stimulate such investments as long as individual firms do not assume the regulator to tighten the allocation rule as a consequence of their investments. The explanation is that output-based allocation creates an implicit subsidy to the firms' output, which increases production, leads to a higher price of allowances, and thus increases the incentives to invest in clean technologies. On the other hand, if the firms expect the regulator to tighten the allocation rule after observing their clean technology investment, the firms' incentives to invest are moderated. If strong, this last effect may outweigh the enhanced investment incentives induced by increased output and higher allowance price.

Om publikasjonen

Tittel

Output-based allocation and investment in clean technologies

Ansvarlige

Knut Einar Rosendahl, Halvor Briseid Storrøsten

Serie og -nummer

Discussion Papers no. 644

Utgiver

Statistics Norway

Emne

Discussion Papers

ISSN

1892-753X

Antall sider

41

Målform

Engelsk

Om Discussion Papers

Discussion papers comprise research papers intended for international journals and books. A preprint of a Discussion Paper may be longer and more elaborate than a standard journal article as it may include intermediate calculations, background material etc.

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