This paper addresses the timing and interdependence between innovation and environmental policy in a model of research … and development (R&D). On a first-best path the environmental tax is set at the Pigouvian level, independent of innovation …. However, with finite patent lifetime, optimal innovation policy depends on the stage of the environmental problem. In the …

the interaction between environmental taxes and innovation externalities in a dynamic economy and prove policy equivalence … directly linked to the source of technological innovation. Arguments for early action in LbD models carry over to a second …