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How Does Climate Policy Affect Technical Change? An Analysis of the Direction and Pace of Technical Progress in a Climate-Economy Model

Author

Listed:
  • Lea Nicita

    (Fondazione Eni Enrico Mattei)

  • Carlo Carraro

    (University of Venice, Fondazione Eni Enrico Mattei, CEPR, CEPS, CESifo and CMCC)

  • Emanuele Massetti

    (Fondazione Eni Enrico Mattei)

Abstract

This paper analyses whether and how a climate policy designed to stabilize greenhouse gases in the atmosphere is likely to change the direction and pace of technical progress. The analysis is performed using an upgraded version of WITCH, a dynamic integrated regional model of the world economy. In this version, a non-energy R&D Sector, which enhances the productivity of the capital-labor aggregate, has been added to the energy R&D sector included in the original WITCH model. We find that, as a consequence of climate policy, R&D is re-directed towards energy knowledge. Nonetheless, total R&D investments decrease, due to a more than proportional contraction of non-energy R&D. Indeed, when non-energy and energy inputs are weakly substitutable, the overall contraction of the economic activity associated with a climate policy induces a decline in total R&D investments. However, enhanced investments in energy R&D and in the energy sector are found not to “crowd-out” investments in non-energy R&D.

Suggested Citation

  • Lea Nicita & Carlo Carraro & Emanuele Massetti, 2009. "How Does Climate Policy Affect Technical Change? An Analysis of the Direction and Pace of Technical Progress in a Climate-Economy Model," Working Papers 2009.8, Fondazione Eni Enrico Mattei.
  • Handle: RePEc:fem:femwpa:2009.8
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    Cited by:

    1. Bosetti, Valentina & Carraro, Carlo & Duval, Romain & Tavoni, Massimo, 2011. "What should we expect from innovation? A model-based assessment of the environmental and mitigation cost implications of climate-related R&D," Energy Economics, Elsevier, vol. 33(6), pages 1313-1320.
    2. Carraro, Carlo & De Cian, Enrica & Tavoni, Massimo, 2012. "Human Capital, Innovation, and Climate Policy: An Integrated Assessment," CEPR Discussion Papers 8919, C.E.P.R. Discussion Papers.
    3. Emanuele Massetti & Lea Nicita, 2010. "The Optimal Climate Policy Portfolio when Knowledge Spills across Sectors," CESifo Working Paper Series 2988, CESifo Group Munich.
    4. Everett, Tim & Ishwaran, Mallika & Ansaloni, Gian Paolo & Rubin, Alex, 2010. "Economic growth and the environment," MPRA Paper 23585, University Library of Munich, Germany.
    5. Bretschger, Lucas & Lechthaler, Filippo & Rausch, Sebastian & Zhang, Lin, 2017. "Knowledge diffusion, endogenous growth, and the costs of global climate policy," European Economic Review, Elsevier, vol. 93(C), pages 47-72.
    6. Zha, Donglan & Kavuri, Anil Savio & Si, Songjian, 2017. "Energy biased technology change: Focused on Chinese energy-intensive industries," Applied Energy, Elsevier, pages 1081-1089.
    7. Joshua S. Gans, 2012. "Innovation and Climate Change Policy," American Economic Journal: Economic Policy, American Economic Association, vol. 4(4), pages 125-145, November.
    8. Stefania Lovo & Michael Gasiorek & Richard Tol, 2014. "Investment in second-hand capital goods and energy intensity," GRI Working Papers 163, Grantham Research Institute on Climate Change and the Environment.

    More about this item

    Keywords

    echnical Change; Climate Policy; Stabilization Cost; R&D Investments;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

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