Uncertain R&D, Backstop Technology and GHGs Stabilization
AbstractThis 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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Bibliographic InfoPaper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2007.6.
Date of creation: Jan 2007
Date of revision:
Climate Change; Information and Uncertainty; Environmental Policy; Optimal R&D Investments;
Other versions of this item:
- Bosetti, Valentina & Tavoni, Massimo, 2009. "Uncertain R&D, backstop technology and GHGs stabilization," Energy Economics, Elsevier, vol. 31(Supplemen), pages S18-S26.
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - 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
This paper has been announced in the following NEP Reports:
- NEP-AGR-2007-02-24 (Agricultural Economics)
- NEP-ALL-2007-02-24 (All new papers)
- NEP-ENE-2007-02-24 (Energy Economics)
- NEP-ENV-2007-02-24 (Environmental Economics)
- NEP-INO-2007-02-24 (Innovation)
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.:
- 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.
- Valentina Bosetti & Carlo Carraro & Marzio Galeotti & Emanuele Massetti & Massimo Tavoni, 2006. "WITCH. A World Induced Technical Change Hybrid Model," Working Papers 2006_46, Department of Economics, University of Venice "Ca' Foscari".
- Baker, Erin & Clarke, Leon & Shittu, Ekundayo, 2008. "Technical change and the marginal cost of abatement," Energy Economics, Elsevier, vol. 30(6), pages 2799-2816, November.
- Baker, Erin & Adu-Bonnah, Kwame, 2008. "Investment in risky R&D programs in the face of climate uncertainty," Energy Economics, Elsevier, vol. 30(2), pages 465-486, March.
- 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.
- 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.
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