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Directed technical change with capital-embodied technologies: Implications for climate policy

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  • Lennox, James A.
  • Witajewski-Baltvilks, Jan

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 stocks. Switching from dirty to clean innovation leads to ongoing reductions in the relative costs of producing clean investment goods, making them ever cheaper to purchase and so encouraging clean investment. At the same time, falling replacement costs imply falling asset values. Consequently, continuing innovation in capital-embodied clean technologies also generates obsolescence costs, which are borne by users of clean capital. The negative effect of obsolescence costs on demand for clean investment and consequently on the speed of transition to clean growth has been neglected in the literature on directed technical change.

Suggested Citation

  • Lennox, James A. & Witajewski-Baltvilks, Jan, 2017. "Directed technical change with capital-embodied technologies: Implications for climate policy," Energy Economics, Elsevier, vol. 67(C), pages 400-409.
  • Handle: RePEc:eee:eneeco:v:67:y:2017:i:c:p:400-409
    DOI: 10.1016/j.eneco.2017.08.005
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    Cited by:

    1. James Lennox & Ramiro Parrado, 2015. "Capital-embodied Technologies in CGE Models," Working Papers 2015.02, Fondazione Eni Enrico Mattei.

    More about this item

    Keywords

    Climate mitigation; Directed technical change; Capital embodiment; Obsolescence; Carbon tax; R&D subsidies;

    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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