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International Energy R&D Spillovers and the Economics of Greenhouse Gas Atmospheric Stabilization

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Author Info
Bosetti, Valentina
Carraro, Carlo
Massetti, Emanuele
Tavoni, Massimo

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Abstract

It is widely recognized that technological change has the potential to reduce GHG emissions without compromising economic growth; hence, any better understanding of the process of technological innovation is likely to increase our knowledge of mitigation possibilities and costs. This paper explores how international knowledge flows affect the dynamics of the domestic R&D sector and the main economic and environmental variables. The analysis is performed using WITCH, a dynamic regional model of the world economy, in which energy technical change is endogenous. The focus is on disembodied energy R&D international spillovers. The knowledge pool from which regions draw foreign ideas differs between High Income and Low Income countries. Absorption capacity is also endogenous in the model. The basic questions are as follows. Do knowledge spillovers enhance energy technological innovation in different regions of the world? Does the speed of innovation increase? Or do free-riding incentives prevail and international spillovers crowd out domestic R&D efforts? What is the role of domestic absorption capacity and of policies designed to enhance it? Do greenhouse gas stabilization costs drop in the presence of international technological spillovers? The new specification of the WITCH model presented in this paper enables us to answer these questions. Our analysis shows that international knowledge spillovers tend to increase free-riding incentives and decrease the investments in energy R&D. The strongest cuts in energy R&D investments are recorded among High Income countries, where international knowledge flows crowd out domestic R&D efforts. The overall domestic pool of knowledge, and thus total net GHG stabilization costs, remain largely unaffected. International spillovers, however, are also an important policy channel. We therefore analyze the implication of a policy mix in which climate policy is combined with a technology policy designed to enhance absorption capacity in developing countries. Significant positive impacts on the costs of stabilising GHG concentrations are singled out. Finally, a sensitivity analysis shows that High Income countries are more responsive than Low Income countries to changes in the parameters and thus suggests to focus additional empirical research efforts on the former.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 6426.

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Date of creation: Aug 2007
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Handle: RePEc:cpr:ceprdp:6426

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Related research
Keywords: Climate policy; Energy R&D; GHG stabilisation; International R&D Spillovers;

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Find related papers by JEL classification:
H0 - Public Economics - - General
H1 - Public Economics - - Structure and Scope of Government
H2 - Public Economics - - Taxation, Subsidies, and Revenue

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References listed on IDEAS
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Carlo Carraro & Valentina Bosetti & Emanuele Massetti, 2008. "Banking Permits: Economic Efficiency and Distributional Effects," Working Papers 2008_01, University of Venice "Ca' Foscari", Department of Economics. [Downloadable!]
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  2. Bosetti, Valentina & Carraro, Carlo & Massetti, Emanuele & Tavoni, Massimo, 2007. "Optimal Energy Investment and R&D Strategies to Stabilise Greenhouse Gas Atmospheric Concentrations," CEPR Discussion Papers 6549, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Valentina Bosetti & Carlo Carraro & Massimo Tavoni, 2008. "Delayed Participation of Developing Countries to Climate Agreements: Should Action in the EU and US be Postponed?," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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