Environmental Policy Research, The Mechanism Of The Technological Changes

Environmental protection and climate change has become one of the mostimportant issues in today's world,while the pressure on China is especially great.Technological change is the key means for realizing environmental protection andclimate change. As there is strong externality and uncertainty in environment-friendlytechnology change,environment policy should be the requirement to guide thedirection of technological change and accelerate the rate of technological changes.Within the economics of technological change there are two relativelywell-developed approaches:the neoclassical approaches in which the agent withperfect rationality follows optimal decision-making,which leads to the appearance of"induced innovation". Evolutionary economics is that optimal behaviors andtechnologies cannot be determined ex ante on the basis of economic calculus but areselected ex post in the selection environment,based on which Porter Hypothesis isprobably right. To study the effect of environmental policy on technological change,theoretical diffusion models such as epidemic model,probit model and rational choicemodel are applied. But they are difficult to describe the change of diffusion rate underdifferent policy pressure. Most innovation models can be placed in static efficiencyanalyses of control instruments,but neglect the influence of different environmentalpolicies on environmental innovation. Besides,empirical studies on certain industryand firm have no common meaning,and hardly distinguish the different effects ofmarket-based and command-and-control policies. Recently a lot of comprehensiveenvironmental policy models have appeared in the field of climate change. Exogenousdescription of technological change includes AEEI and backstop technologies,amongwhich the former can't distinguish technological progress and price,while the latterdepends on cost of technology. Endogenous description of technological change couldrespond to socio-economic (policy) variables,but depends on the assumption ofexogenous parameters.Theory suggests and empirical research confirms that technology innovation anddiffusion do respond to the incentives of the market,and that properly designedregulation can create such incentives. But there are still several questions that haven'tcome into agreement:In the process of diffusion,what should a firm consider when itis going to make choices among technologies? What's the difference between the effect of market-based and command-and-control environmental policy? What aboutthe details of policy instrument and different markets on diffusion? In the process ofR&D,key is uncertainty in R&D (including uncertainties of technology,damage andtime) and how to assure the profit from R&D. The objective of the firm is satisfyingthe timing and performance of environmental policy. Based on different objectives,there is no coincident conclusion as for the firm how to decide the R&D timing,howto distribute R&D investment in a R&D cycle,how to be influenced by differentenvironmental policies.Existing research usually separates the two processes innovation and diffusion andstudy either respectively. The paper combines both innovation and diffusion throughthe profit from market. The market profit can be calculated through price and marketshare in diffusion,which can be considered as expectation market profit fordecision-making in R&D process. Then the environmental policy will directlyinfluence the decision-making in R&D. Endogenous technology in R&D will beexogenous variables in diffusion.Aiming at extemality and uncertainty in environmental technological change,thepaper concentrates the decision-making mechanism and technology choicemechanism under environmental policy. The main contributions of the paper can beconcluded as following:1. In the process of diffusion,the paper thinks environmental policy could changethe competitiveness of techniques,and then change the timing and order oftechniques' appearance and substitution,which is"environmental policy model.controlling timing and order of technology diffusion". It includes optimal profitfunction of the firm,decreasing cost function of three typical techniques (pollution,transitional and clean techniques),price-dependent consumption function andenvironmental policy function under general equilibrium. The result showsenvironmental policy is important to abandon pollution technology and adopt cleantechnology. As a buffering,transitional technology could make a smooth transitionfrom pollution to clean technology.2. As free market and monopoly market have different pricing mechanism,thepaper will analyze technology diffusion path in those two markets. It will get thediffusion paths of three typical techniques under different environmental policiesthrough adjustment of initial tax rate,changing speed of tax rate and changing time oftax rate. It can be inferred that diffusion path will change remarkably according to initial time,maintaining term and changing speed. Command-and-control policyforces the firm to give up the old technique. It proves that the instrument couldinfluence diffusion path effectively if the monitoring is well-worked.3. In the process of R&D,the paper thinks the firm should consider the risk ofR&D except market profit. It builds up"environmental policy model controlling theprocess of technology R&D". It builds up a temporal-decision model throughdynamic programming,among which the firm has to decide the R&D period time andinvestment distribution in different periods to optimize anticipated utility during R&Dprocess. The government could influence the firm's decision by changing value of anew technology,risk preference of the firm and technological maturity in thebeginning. The paper also considers different effects of subsidy after the success ofR&D,subsidy in the process of R&D and mandatory R&D cycle,and brings forwardpolicy implications of information between the government and the firm. To prove themodel,taking the relationship between energy R&D investment and patent numbersin US from 1985 to 2005 as an example,the paper finds energy investment has thestrongest relation with patent numbers of 3 years lagged,which in coincident with theconclusion of the model that technology basic could influence the decision of R&Dinvestment. The paper also shows local protectionism will not only cut down marketprofit of R&D but also extend the R&D period.4. The paper compares different effects of subsidy during R&D process,subsidyafter R&D and mandatory R&D period,and raises some suggestions on how to dealwith information asymmetry. The result shows subsidy during R&D process helps thefirm to solve cash flow problems and significantly increases R&D revenue,resultingin much clearer direction to shorten R&D cycle. In order to avoid the informationasymmetry,the government could give a time limit at the while giving a certain R&Dsubsidy intensity.Technological change is a complex progress. Beginning with analysis of rule oftechnological change,the paper uses kinds of economic methods to study mechanismof technological change under environmental policy in the dynamical,symmetricaland comprehensive way in order to provide some suggestions for design and chooseenvironmental instrument tools scientifically and reasonably.