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A Climate-Change Policy Induced Shift from Innovations in Energy Production to Energy Savings


  • Reyer Gerlagh

    (IVM, Institute for Environmental Studies, Vrije Universiteit)


We develop an endogenous growth model with capital, labor and energy as production factors and three productivity variables that measure accumulated innovations for energy production, energy savings, and neutral growth. All markets are complete and perfect, except for research, for which we assume that the marginal social value exceeds marginal costs by factor four. The model constants are calibrated so that the model reproduces the relevant trends over the 1970-2000 period. The model contains a simple climate module, and is used to assess the impact of Induced Technological Change (ITC) for a policy that aims at a maximum level of atmospheric CO2 concentration (450 ppmv). ITC is shown to reduce the required carbon tax by about a factor 2, and to reduce costs of such a policy by about factor 10. Numerical simulations show that knowledge accumulation shifts from energy production to energy saving technology.

Suggested Citation

  • Reyer Gerlagh, 2004. "A Climate-Change Policy Induced Shift from Innovations in Energy Production to Energy Savings," Working Papers 2004.128, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2004.128

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    References listed on IDEAS

    1. Bovenberg, A Lans & Smulders, Sjak A, 1996. "Transitional Impacts of Environmental Policy in an Endogenous Growth Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(4), pages 861-893, November.
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    More about this item


    Induced technological change; Environmental taxes; Partial equilibrium;

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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