Environmental and Resource Economics

, Volume 51, Issue 3, pp 391–411 | Cite as

Climate Policy, Learning, and Technology Adoption in Small Countries

  • Fuhai Hong
  • Susheng Wang


A significant reduction in global greenhouse gas emissions requires international cooperation in emission abatement as well as individual countries’ investment in the adoption of abatement technology. The existing literature on climate policy pays insufficient attention to small countries, which account for a substantial proportion of global emission. In this study, we investigate how climate policy and learning about climate damage affect investment in abatement technology in small countries. We consider three alternative climate policy instruments: emission standards, harmonized taxes and auctioned permits. We say that learning is feasible if an international environmental agreement (IEA) is formed after the resolution of uncertainty about climate damage. We find that, either with learning and quadratic abatement costs or without learning, harmonized taxes outperform emission standards and auctioned permits in terms of investment efficiency. Without learning, a large cost of nonparticipation (that a country incurs) in the IEA can be beneficial to the country. Whether learning improves investment efficiency depends on the size of this nonparticipation cost.


Abatement technology Auctioned permits Emission standards Harmonized taxes International environmental agreements Learning Small countries 

JEL Classification

Q54 Q55 Q58 


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Copyright information

© Springer Science+Business Media B.V. 2011

Authors and Affiliations

  1. 1.School of EconomicsShanghai University of Finance and EconomicsShanghaiChina
  2. 2.Department of EconomicsHong Kong University of Science and TechnologyClear Water BayHong Kong

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