Carbon Taxes and Clean Research Subsidies : Optimal and Suboptimal Policies for the Clean Transition

An integrated assessment model with endogenous technology is described. Optimal policy involves a clean transition using both carbon tax and clean research subsidy instruments. The paper explores each instrument’s relative performance when acting alone, helping to explain different outcomes in previous literature. If optimal policy eventually begins after 2050, (interim) clean research subsidies until then outperform an interim carbon tax. Suboptimal policies provide limited gains unless sufficient to discourage (myopic) research that increases emissions-intensive activities