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Optimal energy investment and R&D strategies to stabilize atmospheric greenhouse gas concentrations

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  • Bosetti, Valentina
  • Carraro, Carlo
  • Massetti, Emanuele
  • Sgobbi, Alessandra
  • Tavoni, Massimo

Abstract

Stabilizing the atmospheric concentrations of greenhouse gases (GHGs) at levels expected to prevent dangerous climate changes has become an important, long-term global objective. It is therefore crucial to identify a cost-effective way to achieve this objective. In this paper, we use WITCH, a hybrid climate-energy-economy model, to obtain a quantitative assessment of equilibrium strategies that stabilize CO2 concentrations at 550 or 450ppm. Since technological change is endogenous and multifaceted in WITCH, and the energy sector is modeled in detail, we can provide a description of the ideal combination of technical progress and alternative energy investment paths in achieving the sought stabilization targets. Given that the model accounts for interdependencies and spillovers across 12 regions of the world, equilibrium strategies are the outcome of a dynamic game through which inefficiency costs induced by global strategic interactions can be assessed. Our results emphasize the drastic change in the energy mix that will be necessary to control climate change, the huge investments in existing and new technologies implied, and the crucial role of breakthrough technological innovation.

Suggested Citation

  • Bosetti, Valentina & Carraro, Carlo & Massetti, Emanuele & Sgobbi, Alessandra & Tavoni, Massimo, 2009. "Optimal energy investment and R&D strategies to stabilize atmospheric greenhouse gas concentrations," Resource and Energy Economics, Elsevier, vol. 31(2), pages 123-137, May.
  • Handle: RePEc:eee:resene:v:31:y:2009:i:2:p:123-137
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    References listed on IDEAS

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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," OECD Economics Department Working Papers 664, OECD Publishing.
    2. Valentina Bosetti & Carlo Carraro & Marzio Galeotti & Emanuele Massetti & Massimo Tavoni, 2006. "WITCH. A World Induced Technical Change Hybrid Model," Working Papers 2006_46, Department of Economics, University of Venice "Ca' Foscari".
    3. Valentina Bosetti & Carlo Carraro & Massimo Tavoni, 2008. "Delayed Participation of Developing Countries to Climate Agreements: Should Action in the EU and US be Postponed?," CESifo Working Paper Series 2445, CESifo.
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    5. Kypreos, Socrates, 2007. "A MERGE model with endogenous technological change and the cost of carbon stabilization," Energy Policy, Elsevier, vol. 35(11), pages 5327-5336, November.
    6. 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.
    7. Nemet, Gregory F., 2006. "Beyond the learning curve: factors influencing cost reductions in photovoltaics," Energy Policy, Elsevier, vol. 34(17), pages 3218-3232, November.
    8. Jones, Charles I, 1995. "R&D-Based Models of Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 103(4), pages 759-784, August.
    9. David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, vol. 92(1), pages 160-180, March.
    10. 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.
    11. Valentina Bosetti & Emanuele Massetti & Massimo Tavoni, 2007. "The WITCH Model. Structure, Baseline, Solutions," Working Papers 2007.10, Fondazione Eni Enrico Mattei.
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