Impacts of CO 2-taxes in an economy with niche markets and learning-by-doing

Reyer Gerlagh, Bob Van Der Zwaan, Marjan W. Hofkes, Ger Klaassen

Research output: Contribution to journalArticlepeer-review


In this paper, we analyse the impact of carbon taxes on emission levels, when niche markets exist for new carbon-free technologies, and when these technologies experience "learning-by-doing" effects. For this purpose, a general equilibrium model has been developed, DEMETER, that specifies two energy technologies: one based on fossil fuels and one on a composite of carbon-free technologies. Initially, the carbon-free technology has relatively high production costs, but niche markets ensure positive demand. Learning-by-doing decreases production costs, which increases the market share, which in turn accelerates learning-by-doing, and so forth. This mechanism allows a relatively modest carbon tax, of about 50 US$tC, to almost stabilise carbon emissions at their 2000 levels throughout the entire 21st century. Sensitivity analysis shows that the required carbon tax for emission stabilisation crucially depends on the elasticity of substitution between the fossil-fuel and carbon-free technology.
Original languageEnglish
Pages (from-to)367-394
Number of pages27
JournalEnvironmental and Resource Economics
Issue number3
Publication statusPublished - Jul 2004


  • carbon taxes
  • endogenous technological change
  • energy
  • niche markets


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