As I reported yesterday, gas taxes are the best way to reduce carbon pollution. However, that will only be effective if governments can commit to future gas taxes as well. If they can, investment in energy efficiency will happen in an ... efficient way. If they cannot, energy efficiency is out of the window.
In that case, Alistair and David Ulph study how the policy should be altered. The major consequence is that current governments need to overdo in some way current policy in order to make sure future outcomes are coherent with current wishes. In other words, the potential time inconsistency of public policies makes that current government want to lock in future governments. One way to do this is to invest in green technologies, as obviously the private sector would not do it. This can also be attained with investment credits.
I think this opens a ethical question about current governments deciding for future generations. While it is obvious that you do not want to put future generations in a disadvantage due to current choices, it is less clear that it would be advisable to force the choices of future generations to conform with the preferences of current ones. There is a distinction between solving a commitment problem and forcing the hand of future governments.