The impact of environmental policy instruments on the timing of adoption of energy-saving technologies

One of the main considerations in designing environmental policy is the impact of policy instruments on the timing of firms’ investment decisions with respect to energy-saving technologies. This paper analyzes the impact of environmental taxes and quotas on the timing of adoption when (i) the rate at which new, improved energy-efficient technologies become available, is uncertain, and (ii) the investment decision is (at least partially) irreversible. We find that neither policy instrument is unambiguously preferred to the other when it comes to stimulating early adoption of new technologies.