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Uncertain R&D, backstop technology and GHGs stabilization

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  • Bosetti, Valentina
  • Tavoni, Massimo

Abstract

This paper analyses optimal investments in innovation when dealing with a stringent climate target and with the uncertain effectiveness of R&D. The innovation needed to achieve the deep cut in emissions is modeled by a backstop carbon-free technology whose cost depends on R&D investments. To better represent the process of technological progress, we assume that R&D effectiveness is uncertain. By means of a simple analytical model, we show how accounting for the uncertainty that characterizes technological advancement yields higher investments in innovation and lower policy costs. We then confirm the results via a numerical analysis performed with a stochastic version of WITCH, an energy-economy-climate model. The results stress the importance of a correct specification of the technological change process in economy-climate models.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 31 (2009)
Issue (Month): Supplement 1 ()
Pages: S18-S26

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Handle: RePEc:eee:eneeco:v:31:y:2009:i:supplement1:p:s18-s26

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Related research

Keywords: Climate change Information and uncertainty Environmental policy Optimal R&D investments;

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References

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  1. Michael Grubb, Carlo Carraro and John Schellnhuber, 2006. "Technological Change for Atmospheric Stabilization: Introductory Overview to the Innovation Modeling Comparison Project," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 1-16.
  2. Buonanno, Paolo & Carraro, Carlo & Galeotti, Marzio, 2003. "Endogenous induced technical change and the costs of Kyoto," Resource and Energy Economics, Elsevier, vol. 25(1), pages 11-34, February.
  3. Popp, David, 2004. "ENTICE: endogenous technological change in the DICE model of global warming," Journal of Environmental Economics and Management, Elsevier, vol. 48(1), pages 742-768, July.
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Citations

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Cited by:
  1. Valentina Bosetti & Carlo Carraro & Alessandra Sgobbi & Massimo Tavoni, 2008. "Delayed Action and Uncertain Targets. How Much Will Climate Policy Cost?," CESifo Working Paper Series 2403, CESifo Group Munich.
  2. Valentina Bosetti & Carlo Carraro & Emanuele Massetti & Massimo Tavoni, 2007. "Optimal Energy Investment and R&D Strategies to Stabilise Greenhouse Gas Atmospheric Concentrations," CESifo Working Paper Series 2133, CESifo Group Munich.
  3. 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.
  4. Hunter, Kevin & Sreepathi, Sarat & DeCarolis, Joseph F., 2013. "Modeling for insight using Tools for Energy Model Optimization and Analysis (Temoa)," Energy Economics, Elsevier, vol. 40(C), pages 339-349.
  5. DURAND-LASSERVE, Olivier & PIERRU, Axel & SMEERS, Yves, 2011. "Effects of the uncertainty about global economic recovery on energy transition and CO2 price," CORE Discussion Papers 2011028, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. Takanobu Kosugi, 2010. "Assessments of ‘Greenhouse Insurance’: A Methodological Review," Asia-Pacific Financial Markets, Springer, vol. 17(4), pages 345-363, December.
  7. Pablo Salas, 2013. "Literature Review of Energy-Economics Models, Regarding Technological Change and Uncertainty," 4CMR Working Paper Series 003, University of Cambridge, Department of Land Economy, Cambridge Centre for Climate Change Mitigation Research.
  8. Bosetti, Valentina & Carraro, Carlo & Tavoni, Massimo, 2008. "Delayed Participation of Developing Countries to Climate Agreements: Should Action in the EU and US be Postponed?," CEPR Discussion Papers 6967, C.E.P.R. Discussion Papers.
  9. Otto, Vincent M. & Löschel, Andreas, 2008. "Technological Uncertainty and Cost-effectiveness of CO2 Emission Trading Schemes," ZEW Discussion Papers 08-050, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  10. BRECHET, Thierry & THENIE, Julien & ZEIMES, Thibaut & ZUBER, Stéphane, 2010. "The benefits of cooperation under uncertainty: the case of climate change," CORE Discussion Papers 2010062, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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