Carbon mandates with cost-based vs. emission-based innovation
Stéphane Lemarié  1@  , Nicolas Pasquier  1@  
1 : Laboratoire dÉconomie Appliquée de Grenoble  -  Website
Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement : UMR1215, Université Grenoble Alpes, Centre National de la Recherche Scientifique : UMR5313, Institut Polytechnique de Grenoble - Grenoble Institute of Technology

In this paper we compare two carbon mandate policies in the fuel producing context. With the first policy, a mandate requires the fuel producers to use a minimum percentage of biofuel in their fuel blend. With the second policy, the mandate is a carbon emission standard that defines the maximum GHG emission level per unit of fuel blend. The comparison is made with a partial equilibrium model where an innovator can licence the innovation to a fuel industry.
We show that the two policies have the same effect on the incentive to innovate for decreasing the cost for producing biofuel. However the two policies differ when considering innovation that leads to a reduction of the emission of biofuel. More precisely, there is no incentive to innovate with quantity mandates while carbon emission standard can create incentives for such innovation.

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