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ENTICE-BR: The Effects of Backstop Technology R&D on Climate Policy Models

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  • David Popp
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    Abstract

    Recent attempts to endogenize technology in climate policy models have produced mixed results. Models including alternative technologies find large gains from induced technological change. However, technological progress in these models comes through learning-by-doing, which ignores the potential opportunity costs of technological change. Models using R&D spending as the driver of technological change address this. However, these models typically include only a single representative energy technology, substitution across technologies is not possible. This paper addresses these shortcomings by including policy-induced energy R&D in a model with a backstop energy technology. I show that, while induced technological change is important, larger welfare gains come from simply adding an alternative technology to the model. As in models with a single technology, opportunity costs of research limit the role induced innovation can play. Moreover, since the backstop technology improves welfare even without climate policy, accurate policy analysis depends on a carefully constructed baseline simulation.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10285.

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    Date of creation: Feb 2004
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    Publication status: published as Popp, David. "ENTICE-BR: The Effects Of Backstop Technology R&D On Climate Policy Models," Energy Economics, 2006, v28(2,Mar), 188-202.
    Handle: RePEc:nbr:nberwo:10285

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    1. Ibenholt, Karin, 2002. "Explaining learning curves for wind power," Energy Policy, Elsevier, Elsevier, vol. 30(13), pages 1181-1189, October.
    2. Richard G. Newell & Adam B. Jaffe & Robert N. Stavins, 1998. "The Induced Innovation Hypothesis and Energy-Saving Technological Change," NBER Working Papers 6437, National Bureau of Economic Research, Inc.
    3. David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, American Economic Association, vol. 92(1), pages 160-180, March.
    4. Buonanno, Paolo & Carraro, Carlo & Galeotti, Marzio, 2003. "Endogenous induced technical change and the costs of Kyoto," Resource and Energy Economics, Elsevier, Elsevier, vol. 25(1), pages 11-34, February.
    5. Sabine Messner, 1997. "Endogenized technological learning in an energy systems model," Journal of Evolutionary Economics, Springer, Springer, vol. 7(3), pages 291-313.
    6. Manne, Alan & Richels, Richard, 2004. "The impact of learning-by-doing on the timing and costs of CO2 abatement," Energy Economics, Elsevier, Elsevier, vol. 26(4), pages 603-619, July.
    7. Lanjouw, Jean Olson & Mody, Ashoka, 1996. "Innovation and the international diffusion of environmentally responsive technology," Research Policy, Elsevier, Elsevier, vol. 25(4), pages 549-571, June.
    8. Adam B. Jaffe & Karen Palmer, 1996. "Environmental Regulation and Innovation: A Panel Data Study," NBER Working Papers 5545, National Bureau of Economic Research, Inc.
    9. Popp, David C., 2001. "The effect of new technology on energy consumption," Resource and Energy Economics, Elsevier, Elsevier, vol. 23(3), pages 215-239, July.
    10. Austan Goolsbee, 1998. "Does Government R&D Policy Mainly Benefit Scientists and Engineers?," NBER Working Papers 6532, National Bureau of Economic Research, Inc.
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    12. Mansfield, Edwin, et al, 1977. "Social and Private Rates of Return from Industrial Innovations," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 91(2), pages 221-40, May.
    13. 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.
    14. Jaffe, Adam B, 1986. "Technological Opportunity and Spillovers of R&D: Evidence from Firms' Patents, Profits, and Market Value," American Economic Review, American Economic Association, American Economic Association, vol. 76(5), pages 984-1001, December.
    15. Reyer Gerlagh & Wietze Lise, 2003. "Induced Technological Change Under Carbon Taxes," Working Papers, Fondazione Eni Enrico Mattei 2003.84, Fondazione Eni Enrico Mattei.
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    Cited by:
    1. Jérémy Laurent-Lucchetti & Andrew Leach, 2006. "Induced innovation in a decentralized model of climate change," Cahiers de recherche 06-02, HEC Montréal, Institut d'économie appliquée.
    2. Marzio Galeotti & Carlo Carraro, 2004. "Does Endogenous Technical Change Make a Difference in Climate Policy Analysis? A Robustness Exercise with the FEEM-RICE Model," Working Papers, Fondazione Eni Enrico Mattei 2004.152, Fondazione Eni Enrico Mattei.

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