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Stabilisation Targets, Technical Change and the Macroeconomic Costs of Climate Change Control

  • Valentina Bosetti

    (Fondazione Eni Enrico Mattei)

  • Carlo Carraro

    (Università Ca’ Foscari di Venezia and Fondazione Eni Enrico Mattei)

  • Marzio Galeotti

    (Università di Milano and Fondazione Eni Enrico Mattei)

The issue of greenhouse gas (GHG) stabilization stands on three critical open questions. Namely, what are the impacts deriving from different levels of climate change and their distribution. What are the levels at which GHG concentration should be stabilized in order to avoid unacceptable impacts. And, finally, what are the costs and what are the instruments available to reach such stabilization targets. In the present paper, we address the latter question, in the specific attempt of shedding some light on the debated role of technological progress in lowering the costs of GHG stabilization. In particular, we use an optimal growth climate-economy model, where technical change is endogenously driven by learning by researching and learning by doing. In the model, when an ambitious stabilization target has to be reached, some additional technological innovation and diffusion is induced. The magnitude of this induced effect substantially affects the costs of stabilizing greenhouse gasses and may even make a well-designed climate policy a win-win strategy. A sensitivity analysis on the model crucial parameters is performed to account for structural and parametric uncertainties on learning effects, on the relationship between knowledge accumulation and the energy and carbon intensity of the economic system, and on the crowding out of investments in the energy sector R&D with respect to other research fields.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2006.2.

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Date of creation: Jan 2006
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Handle: RePEc:fem:femwpa:2006.2
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  1. Kemfert, Claudia, 2005. "Induced technological change in a multi-regional, multi-sectoral, integrated assessment model (WIAGEM): Impact assessment of climate policy strategies," Ecological Economics, Elsevier, vol. 54(2-3), pages 293-305, August.
  2. repec:ner:tilbur:urn:nbn:nl:ui:12-3764008 is not listed on IDEAS
  3. Valentina Bosetti & Marzio Galeotti & Alessandro Lanza, 2004. "How Consistent are Alternative Short-Term Climate Policies with Long-Term Goals?," Working Papers 2004.157, Fondazione Eni Enrico Mattei.
  4. Reyer Gerlagh & Wietze Lise, 2003. "Induced Technological Change Under Carbon Taxes," Working Papers 2003.84, Fondazione Eni Enrico Mattei.
  5. Sabine Messner, 1997. "Endogenized technological learning in an energy systems model," Journal of Evolutionary Economics, Springer, vol. 7(3), pages 291-313.
  6. 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 2004.152, Fondazione Eni Enrico Mattei.
  7. Goulder, Lawrence H. & Mathai, Koshy, 2000. "Optimal CO2 Abatement in the Presence of Induced Technological Change," Journal of Environmental Economics and Management, Elsevier, vol. 39(1), pages 1-38, January.
  8. repec:ner:tilbur:urn:nbn:nl:ui:12-3764009 is not listed on IDEAS
  9. Popp, David, 2006. "ENTICE-BR: The effects of backstop technology R&D on climate policy models," Energy Economics, Elsevier, vol. 28(2), pages 188-222, March.
  10. Löschel, Andreas, 2001. "Technological change in economic models of environmental policy: a survey," ZEW Discussion Papers 01-62, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  11. Manne, Alan S. & Barreto, Leonardo, 2004. "Learn-by-doing and carbon dioxide abatement," Energy Economics, Elsevier, vol. 26(4), pages 621-633, July.
  12. 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.
  13. Gerlagh, Reyer & van der Zwaan, Bob, 2003. "Gross world product and consumption in a global warming model with endogenous technological change," Resource and Energy Economics, Elsevier, vol. 25(1), pages 35-57, February.
  14. Alan Manne & Richard Richels, 1992. "Buying Greenhouse Insurance: The Economic Costs of CO2 Emission Limits," MIT Press Books, The MIT Press, edition 1, volume 1, number 026213280x, June.
  15. Buonanno, Paolo & Carraro, Carlo & Galeotti, Marzio, 2003. "Endogenous induced technical change and the costs of Kyoto," Resource and Energy Economics, Elsevier, vol. 25(1), pages 11-34, February.
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