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Directed Technical Change With Capital-Embodied Technologies: Implications For Climate Policy

Author

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  • James A. Lennox

    (Fondazione Eni Enrico Mattei (FEEM))

  • Jan Witajewski

    (Fondazione Eni Enrico Mattei (FEEM))

Abstract

We develop a theoretical model of directed technical change in which clean (zero emissions) and dirty (emissions-intensive) technologies are embodied in long-lived capital. We show how obsolescence costs generated by technological embodiment create inertia in a transition to clean growth. Optimal policies involve higher and longer-lasting clean R&D subsidies than when technologies are disembodied. From a low level, emissions taxes are initially increased rapidly, so they are higher in the long run. There is more warming. Introducing spillovers from an exogenous technological frontier representing non-energy-intensive technologies reduces mitigation costs. Optimal taxes and subsidies are lower and there is less warming.

Suggested Citation

  • James A. Lennox & Jan Witajewski, 2014. "Directed Technical Change With Capital-Embodied Technologies: Implications For Climate Policy," Working Papers 2014.73, Fondazione Eni Enrico Mattei.
    • Handle: RePEc:fem:femwpa:2014.73
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    Cited by:

    1. Emanuele Campiglio & Alessandro Spiganti & Anthony Wiskich, 2023. "Clean innovation and heterogeneous financing costs," Working Papers 2023: 07, Department of Economics, University of Venice "Ca' Foscari".
    2. Lennox, James & Parrado, Ramiro, 2015. "Capital-embodied Technologies in CGE Models," Climate Change and Sustainable Development 196998, Fondazione Eni Enrico Mattei (FEEM).

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    More about this item

    Keywords

    Climate Change Mitigation; Directed Technical Change; Capital-Embodiment; Investment-Specific Technological Change; Obsolescence;
    All these keywords.

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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