GDL

It is often argued that policies designed to protect the environment may harm economic growth. Moreover, if introduced unilaterally by a given country, they may reduce the competitiveness of domestic firms. These arguments are generally based on the assumption that environmental protection has to be achieved through the introduction of emission


charges (e.g. a carbon tax). However, three issues need to be raised: first, the tax is not the


only policy instrument--and is not the most efficient one--that can be used to reduce polluting emissions; secondly, even when a tax policy is implemented, it is important to assess the feedback effects induced by recycling the tax revenue; thirdly, and most impor-tantly, the role of technical progress cannot be neglected. Therefore, there may exist a policy mix that provides firms with the correct incentives to adopt energy-saving technologies and to invest in environment-friendly R & D. The first two issues have partly been explored both in the theoretical and empirical literature. The third issue, i.e. the role of incentives to technical progress, still lacks adequate quantitative assessment. This is why a new model has been developed which endogenizes technical progress and its effects and feedbacks on economic, energy and environmental variables.

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