This paper takes its departure in two observations from the EU’s climate policy. First, the EU has adopted a dual … through a trading scheme, stand in contrast to taxes being the preferable policy instrument. The present paper addresses, by …

and the technology’s penetration rate, we argue that the policy maker’s ability to use the cap to counter market failures … in the R&D stage is limited. This is due to a dynamic inconsistency problem where the policy maker is unable to credibly … commit to a future policy that is more stringent than motivated by efficiency concerns given the then existing technology …