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Uncertain R&D, Backstop Technology and GHGs Stabilization

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Author Info
Valentina Bosetti (Fondazione Eni Enrico Mattei)
Massimo Tavoni (Fondazione Eni Enrico Mattei)

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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 modelled 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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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2007.6.

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Date of creation: Jan 2007
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Handle: RePEc:fem:femwpa:2007.6

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Related research
Keywords: Climate Change; Information and Uncertainty; Environmental Policy; Optimal R&D Investments;

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Find related papers by JEL classification:
O32 - Economic Development, Technological Change, and Growth - - Technological Change - - - Management of Technological Innovation and R&D
Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters
Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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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. Valentina Bosetti & Carlo Carraro & Marzio Galeotti & Emanuele Massetti & Massimo Tavoni, 2006. "WITCH. A World Induced Technical Change Hybrid Model," Working Papers 2006_46, University of Venice "Ca' Foscari", Department of Economics. [Downloadable!]
  2. Michael Grubb & Carlo Carraro & 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.
  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. [Downloadable!] (restricted)
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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 & Massimo Tavoni, 2007. "Optimal Energy Investment and R&D Strategies to Stabilise Greenhouse Gas Atmospheric Concentrations," Working Papers 2007_22, University of Venice "Ca' Foscari", Department of Economics. [Downloadable!]
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  2. Carlo Carraro & Valentina Bosetti & Alessandra Sgobbi & Massimo Tavoni, 2008. "Delayed Action and Uncertain Targets. How Much Will Climate Policy Cost?," Working Papers 2008_27, University of Venice "Ca' Foscari", Department of Economics. [Downloadable!]
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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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