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Abstract

Climate change, a consequence of excess greenhouse gas emissions (GGE) into the atmosphere, may seriously disrupt the world economy in future decades. In a 2006 report, the results of which have been widely publicised, economist Nicholas Stern considered that in the absence of coordinated intervention by the international community, the average temperature could rise more than 3°C by the end of the century, which would cost the planet’s inhabitants the equivalent of 5% of gross world product each year (Stern, 2007). We study and compare two types of tools at the disposal of the public authorities to encourage a reduction in carbon emissions: a carbon tax and subsidies for “green” research and development (R&D). We show that the two policies are not antagonistic but in fact complementary, with each reinforcing the role of the other in the correction of the externality justifying its implementation.

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