Joint management of emission abatement and technological innovation for stock externalities

We investigate how emission abatement and technological innovation provide different solutions to reduce pollutant emissions. In the case of a stock e xternality emission abatement leads to a smooth and continuous adjustment o f emissions. Conversely, technological innovation has to be interpreted as an option on a less polluted environment and can justify the use of a pollu tion threshold above which it is optimal to start a research and developmen t programme for a less polluting technology. It is shown that technological innovation interferes with the traditional emission abatement approach. Th e optimal abatement level is logically lowered once the less polluting tech nology is available; nevertheless a temporary increase in emissions is opti mal during the research and development period. The usual Pigouvian tax sys tem proves to remain an efficient corrective instrument. A numerical applic ation to the Greenhouse effect is provided.