ABSTRACT

Over the past decade considerable efforts have been directed toward evaluating alternative policies to reduce the atmospheric accumulation of greenhouse gases, particularly carbon dioxide (C 02). Initial assessments tended to disregard interconnections between technological change and C 0 2-abatement policies, treating the rate of technological progress as autonomous-that is, unrelated to policy changes or associated changes in relative prices. Recently, however, several researchers have emphasized that C 0 2 policies and the rate of technological change are connected: to the extent that public policies affect the prices of carbon-based fuels, they affect incentives to invest in research and development (R & D ) aimed at

1 Address correspondence to: Lawrence H. Goulder, Department of Economics, Stanford University, Stanford, CA 94305. E-mail: goulder@leland.stanford.edu. We have benefitted from very helpful comments from Michael Dalton, Michael Grubb, Chad Jones, Alan Manne, Robert Mendelsohn, William Nordhaus, Richard Richels, Stephen Schneider, Sjak Smulders, David Wheeler, and an anonymous referee. Financial support from Department of Energy Grant DE-FG03-95ER62104 and National Science Foundation Grant SBR9310362 is gratefully acknowledged.