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Directed technical change and differentiation of climate policy

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Author Info

  • Otto, Vincent M.
  • Löschel, Andreas
  • Reilly, John

Abstract

This paper studies the cost effectiveness of climate policy if there are technology externalities. For this purpose, we develop a forward looking model that captures empirical links between CO2 emissions associated with energy use, directed technical change and the economy. We find our most cost effective climate policy to include a combination of R&D subsidies and CO2 emission constraints, although R&D subsidies raise the shadow value of the CO2 constraint (i.e. CO2 price) because of a strong rebound effect from stimulating innovation. Furthermore, we find that cost effectiveness of climate policy improves if it is differentiated between technologies. Even our rudimentary distinction between CO2 intensive technologies and non-CO2 intensive technologies lead to this result. Such differentiated climate policy encourages growth in the non-CO2 intensive sectors and discourages growth in CO2 intensive sectors by harnessing positive effects of technology externalities on total factor productivity in the former and letting the latter bear relatively more of the abatement burden. This result is robust to whether emission constraints, R&D subsidies or combinations of both are used as climate policy instruments.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 30 (2008)
Issue (Month): 6 (November)
Pages: 2855-2878

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Handle: RePEc:eee:eneeco:v:30:y:2008:i:6:p:2855-2878

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Web page: http://www.elsevier.com/locate/eneco

Related research

Keywords: Directed technical change Climate policy Computable general equilibrium model R&D;

References

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  1. Lau, Morten I. & Pahlke, Andreas & Rutherford, Thomas F., 2002. "Approximating infinite-horizon models in a complementarity format: A primer in dynamic general equilibrium analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 26(4), pages 577-609, April.
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Citations

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Cited by:
  1. David Popp & Nidhi Santen & Karen Fisher-Vanden & Mort Webster, 2012. "Technology Variation vs. R&D Uncertainty: What Matters Most for Energy Patent Success?," NBER Working Papers 17792, National Bureau of Economic Research, Inc.
  2. Orachos Napasintuwong Artachinda, 2011. "Modeling Directions of Technical Change in Agricultural Sector," Working Papers 201101, Kasetsart University, Department of Agricultural and Resource Economics.
  3. Loisel, Rodica, 2009. "Environmental climate instruments in Romania: A comparative approach using dynamic CGE modelling," Energy Policy, Elsevier, vol. 37(6), pages 2190-2204, June.
  4. Wei Jin, 2012. "Can Technological Innovation Help China Take on Its Climate Responsibility? A Computable General Equilibrium Analysis," CAMA Working Papers 2012-51, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  5. Kurt Kratena & Michael Wüger, 2012. "Technological Change and Energy Demand in Europe," WIFO Working Papers 427, WIFO.
  6. Heggedal, Tom-Reiel & Jacobsen, Karl, 2011. "Timing of innovation policies when carbon emissions are restricted: An applied general equilibrium analysis," Resource and Energy Economics, Elsevier, vol. 33(4), pages 913-937.
  7. Enrica Cian & Valentina Bosetti & Massimo Tavoni, 2012. "Technology innovation and diffusion in “less than ideal” climate policies: An assessment with the WITCH model," Climatic Change, Springer, vol. 114(1), pages 121-143, September.
  8. Popp, David & Santen, Nidhi & Fisher-Vanden, Karen & Webster, Mort, 2013. "Technology variation vs. R&D uncertainty: What matters most for energy patent success?," Resource and Energy Economics, Elsevier, vol. 35(4), pages 505-533.
  9. Enrica De Cian & Samuel Carrara & Massimo Tavoni, 2012. "Innovation Benefits from Nuclear Phase-out: Can they Compensate the Costs?," Working Papers 2012.96, Fondazione Eni Enrico Mattei.
  10. Rodica Loisel, 2009. "Environmental climate instruments in Romania: A comparative approach using dynamic CGE modelling," Post-Print halshs-00441491, HAL.
  11. Blyth, William & Bunn, Derek & Kettunen, Janne & Wilson, Tom, 2009. "Policy interactions, risk and price formation in carbon markets," Energy Policy, Elsevier, vol. 37(12), pages 5192-5207, December.
  12. Brita Bye & Karl Jacobsen, 2009. "On general versus emission saving R&D support," Discussion Papers 584, Research Department of Statistics Norway.

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