Effect of Energy-environmental Policies on Technology Innovation

The purpose of this paper is to discuss the innovation incentives and welfare effect of different and composite energy-environmental policies on technology innovation. The paper starts from the dynamics of technology innovation stressing the influence of governmental regulations. A model is developed to analyze the effects of emissions tax, auctioned permits and direct command and control regulation particularly. The supply side of the innovation market is incorporated in the model. Results show that the combination of direct command and control regulation and market-oriented policy is effective in the short run. The analysis also indicates that sometimes the direct command and control are rational options given the condition that quick and temporary policy adjustment is required for certain emergent cases. Future policy implications in China are also discussed.