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Modeling Biased Technical Change. Implications for Climate Policy

  • Enrica De Cian

    (Fondazione Eni Enrico Mattei)

  • Carlo Carraro

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

  • Lea Nicita

    (Fondazione Eni Enrico Mattei)

Climate-economy models aiming at quantifying the costs and effects of climate change impacts and policies have become important tools for climate policy decision-making. Although there are several important dimensions along which models differ, this paper focuses on a key component of climate change economics and policy, namely technical change. This paper tackles the issues of whether technical change is biased towards the energy sectors, the importance of the elasticity of substitution between factors in determining this bias and how mitigation policy is likely to affect it. The analysis is performed using the World Induced Technical Change model, WITCH. Three different versions of the model are proposed. The starting set-up includes endogenous technical change only in the energy sector. A second version introduces endogenous technical change in both the energy and non-energy sectors. A third version of the model embodies different sources of technical change, namely R&D and human capital. Although different formulations of endogenous technical change have only a minor influence on climate policy costs, the macroeconomic effects on knowledge and human capital formation can vary greatly.

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Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2010.4.

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Date of creation: Jan 2010
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Handle: RePEc:fem:femwpa:2010.4
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