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What should we expect from innovation? A model-based assessment of the environmental and mitigation cost implications of climate-related R&D

  • Bosetti, Valentina
  • Carraro, Carlo
  • Duval, Romain
  • Tavoni, Massimo

This paper addresses two basic issues related to technological innovation and climate stabilization objectives: can innovation policies be effective in stabilizing climate? To what extent can innovation policies complement carbon pricing (taxes or permit trading) and improve the economic efficiency of a mitigation policy package? To answer these questions, we use an integrated assessment model with multiple externalities and an endogenous representation of the technical progress in the energy sector. We evaluate a range of innovation policies, both as stand-alone and in combination with other mitigation policies. Our analysis indicates that innovation policies alone are unlikely to stabilize global concentration and temperature. As for the benefits of combining climate and innovation policies, we find efficiency gains of 10% (6 USD Trillions in net present value terms) for a stringent climate policy, and 30% (3 USD Trillions) for a milder one. However, such gains are reduced when more plausible (sub-optimal) global innovation policy arrangements are considered.

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Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 33 (2011)
Issue (Month): 6 ()
Pages: 1313-1320

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Handle: RePEc:eee:eneeco:v:33:y:2011:i:6:p:1313-1320
DOI: 10.1016/j.eneco.2011.02.010
Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

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  1. Valentina Bosetti & Carlo Carraro & Romain Duval & Alessandra Sgobbi & Massimo Tavoni, 2009. "The Role of R&D and Technology Diffusion in Climate Change Mitigation: New Perspectives Using the Witch Model," Working Papers 2009.14, Fondazione Eni Enrico Mattei.
  2. Valentina Bosetti & Carlo Carraro & Emanuele Massetti & Massimo Tavoni, 2007. "International Energy R&D Spillovers and the Economics of Greenhouse Gas Atmospheric Stabilization," CESifo Working Paper Series 2151, CESifo Group Munich.
  3. Jaffe, Adam B. & Newell, Richard G. & Stavins, Robert N., 2005. "A tale of two market failures: Technology and environmental policy," Ecological Economics, Elsevier, vol. 54(2-3), pages 164-174, August.
  4. Sanden, Bjorn A. & Azar, Christian, 2005. "Near-term technology policies for long-term climate targets--economy wide versus technology specific approaches," Energy Policy, Elsevier, vol. 33(12), pages 1557-1576, August.
  5. 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.
  6. Nemet, Gregory F. & Kammen, Daniel M., 2007. "U.S. energy research and development: Declining investment, increasing need, and the feasibility of expansion," Energy Policy, Elsevier, vol. 35(1), pages 746-755, January.
  7. Carlo Carraro & Enrica De Cian & Massimo Tavoni, 2009. "Human capital formation and global warming mitigation: evidence from an integrated assessment model," Working Papers 2009_30, Department of Economics, University of Venice "Ca' Foscari".
  8. Nemet, Gregory F., 2006. "Beyond the learning curve: factors influencing cost reductions in photovoltaics," Energy Policy, Elsevier, vol. 34(17), pages 3218-3232, November.
  9. Tooraj Jamasb, 2007. "Technical Change Theory and Learning Curves: Patterns of Progress in Electricity Generation Technologies," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 51-72.
  10. Carlo Carraro, Emanuele Massetti, Lea Nicita, 2009. "How Does Climate Policy Affect Technical Change? An Analysis of the Direction and Pace of Technical Progress in a Climate-Economy Model," The Energy Journal, International Association for Energy Economics, vol. 0(Special I).
  11. Patrik Söderholm & Ger Klaassen, 2007. "Wind Power in Europe: A Simultaneous Innovation–Diffusion Model," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 36(2), pages 163-190, February.
  12. David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, vol. 92(1), pages 160-180, March.
  13. Davis, Graham A. & Owens, Brandon, 2003. "Optimizing the level of renewable electric R&D expenditures using real options analysis," Energy Policy, Elsevier, vol. 31(15), pages 1589-1608, December.
  14. Lori Bennear & Robert Stavins, 2007. "Second-best theory and the use of multiple policy instruments," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 37(1), pages 111-129, May.
  15. Valentina Bosetti & Emanuele Massetti & Massimo Tavoni, 2007. "The WITCH Model. Structure, Baseline, Solutions," Working Papers 2007.10, Fondazione Eni Enrico Mattei.
  16. Valentina Bosetti, Carlo Carraro, Marzio Galeotti, Emanuele Massetti, Massimo Tavoni, 2006. "A World induced Technical Change Hybrid Model," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 13-38.
  17. 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.
  18. Reyer Gerlagh & Bob van der Zwaan, 2006. "Options and Instruments for a Deep Cut in CO2 Emissions: Carbon Dioxide Capture or Renewables, Taxes or Subsidies?," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3), pages 25-48.
  19. Klaassen, Ger & Miketa, Asami & Larsen, Katarina & Sundqvist, Thomas, 2005. "The impact of R&D on innovation for wind energy in Denmark, Germany and the United Kingdom," Ecological Economics, Elsevier, vol. 54(2-3), pages 227-240, August.
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