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EMF WP 19.2: Environmental Technology Policy and Emerging Technologies

This paper explores the role and design of environmental technology policy when environmental innovation is embodied in an emerging environmental technology and when policy makers have been unable to fully internalize the environmental costs of production. The paper diverges from previous theoretical economic research on environmental innovation, first, by explicitly modeling the competition between two distinct technologies and, second, by using a simplified general model of industry innovative behavior. The paper suggests that merging environmental technologies fall into four possible categories, or “regions”, each with its own welfare and policy implications. The paper also explores the allocation of research among technologies, and puts special emphasis on the distinct role of demand-pull and technology-push policies.