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The Influence of Economic Growth, Population, and Fossil Fuel Scarcity on Energy Investments

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  • Enrica De Cian

    (Fondazione Eni Enrico Mattei, Euro-Mediterranean Center on Climate Change, Italy)

  • Fabio Sferra

    (Fondazione Eni Enrico Mattei, Euro-Mediterranean Center on Climate Change, Italy)

  • Massimo Tavoni

    (Fondazione Eni Enrico Mattei, Euro-Mediterranean Center on Climate Change, Italy)

Abstract

This paper examines the dynamics of energy investments and clean energy Research and Development (R&D) using a scenario-based modeling approach. Starting from the global scenarios proposed in the RoSE model ensemble experiment, we analyze the dynamics of investments under different assumptions regarding economic and population growth as well as availability of fossil fuel resources, in the absence of a climate policy. Our analysis indicates that economic growth and the speed of income convergence across countries matters for improvements in energy efficiency, both via dedicated R&D investments but mostly through capital-energy substitution. In contrast, fossil fuel prices, by changing the relative competitiveness of energy sources, create an economic opportunity for radical innovation in the energy sector. Indeed, our results suggest that fossil fuel availability is the key driver of investments in low carbon energy innovation. However, this innovation, by itself, is not sufficient to induce emission reductions compatible with climate stabilization objectives.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2013.59.

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Date of creation: Jun 2013
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Handle: RePEc:fem:femwpa:2013.59

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Keywords: Technological change and innovation; Energy investments; R&D Investments; Fossil fuel availability; Fossil fuel prices; Energy Intensity; Carbon Intensity;

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  1. Hübler, Michael, 2011. "Technology diffusion under contraction and convergence: A CGE analysis of China," Energy Economics, Elsevier, vol. 33(1), pages 131-142, January.
  2. Leimbach, Marian & Baumstark, Lavinia, 2010. "The impact of capital trade and technological spillovers on climate policies," Ecological Economics, Elsevier, vol. 69(12), pages 2341-2355, October.
  3. Hübler, Michael & Baumstark, Lavinia & Leimbach, Marian & Edenhofer, Ottmar & Bauer, Nico, 2012. "An integrated assessment model with endogenous growth," Ecological Economics, Elsevier, vol. 83(C), pages 118-131.
  4. Valentina Bosetti & Massimo Tavoni, 2007. "Uncertain R&D, Backstop Technology and GHGs Stabilization," Working Papers 2007.6, Fondazione Eni Enrico Mattei.
  5. David Popp & Richard G. Newell & Adam B. Jaffe, 2009. "Energy, the Environment, and Technological Change," NBER Working Papers 14832, National Bureau of Economic Research, Inc.
  6. 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.
  7. Richels, Richard G. & Blanford, Geoffrey J., 2008. "The value of technological advance in decarbonizing the U.S. economy," Energy Economics, Elsevier, vol. 30(6), pages 2930-2946, November.
  8. David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, vol. 92(1), pages 160-180, March.
  9. Ang, B. W., 2005. "The LMDI approach to decomposition analysis: a practical guide," Energy Policy, Elsevier, vol. 33(7), pages 867-871, May.
  10. Edenhofer, Ottmar & Bauer, Nico & Kriegler, Elmar, 2005. "The impact of technological change on climate protection and welfare: Insights from the model MIND," Ecological Economics, Elsevier, vol. 54(2-3), pages 277-292, August.
  11. Stavins, Robert & Jaffe, Adam & Newell, Richard, 1998. "The Induced Innovation Hypothesis and Energy-Saving Technological Change," Discussion Papers dp-98-12-rev, Resources For the Future.
  12. Blanford, Geoffrey J., 2009. "R&D investment strategy for climate change," Energy Economics, Elsevier, vol. 31(Supplemen), pages S27-S36.
  13. Ottmar Edenhofer, Kai Lessmann, Claudia Kemfert, Michael Grubb and Jonathan Kohler , 2006. "Induced Technological Change: Exploring its Implications for the Economics of Atmospheric Stabilization: Synthesis Report from the Innovation Modeling Comparison Project," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 57-108.
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Cited by:
  1. Carlo Orecchia & Ramiro Parrado, 2013. "A Quantitative Assessment of the Implications of Including non-CO2 Emissions in the European ETS," Working Papers 2013.100, Fondazione Eni Enrico Mattei.

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