In this paper we develop an economic growth model that includes anthropogenic

climate change. We include a publicly funded research sector that creates new technologies

and simultaneously expands the productivities of existing technologies. The

environment is affected by R&D activities both negatively, through the increase of

output from productivity growth, as well as positively as new technologies are less

harmful for the environment. We find that there may exist two different steadystates

of the economy, depending on the amount of research spending: one with less

new technologies being developed and the other with more technologies. Thus, a

lock-in effect may arise that, however, can be overcome by raising R&D spending

sufficiently such that the steady-state becomes unique. We derive the combinations

of fiscal policy instruments for which that can be achieved and we study the implications

for the economy and for the environment. In particular, the double dividend

hypothesis may hold only under some specific conditions.