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ENTICE: Endogenous Technological Change in the DICE Model of Global Warming

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  • David Popp

Abstract

Despite growing empirical evidence of the link between environmental policy and innovation, most economic models of environmental policy treat technology as exogenous. For long-term problems such as climate change, this omission can be significant. In this paper, I modify the DICE model of climate change (Nordhaus 1994, Nordhaus and Boyer 2000) to allow for induced innovation in the energy sector. Ignoring induced technological change overstates the welfare costs of an optimal carbon tax policy by 8.3 percent. However, cost-savings, rather than increased environmental benefits, appear to drive the welfare gains, as the effect of induced innovation on emissions and mean global temperature is small. Sensitivity analysis shows that potential crowding out of other R&D and market failures in the R&D sector are the most important limiting factors to the potential of induced innovation. Differences in these key assumptions explain much of the variation in the findings of other similar models.

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  • David Popp, 2003. "ENTICE: Endogenous Technological Change in the DICE Model of Global Warming," NBER Working Papers 9762, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:9762
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    Cited by:

    1. Roson, Roberto, 2013. "A modelling framework for assessing the economic impact of climate change in the Caribbean," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    2. Benchekroun, H. & Ray Chaudhuri, A., 2010. "'The Voracity Effect' and Climate Change : The Impact of Clean Technologies," Discussion Paper 2010-97, Tilburg University, Center for Economic Research.
    3. Otto, Vincent M. & Loschel, Andreas & Dellink, Rob, 2007. "Energy biased technical change: A CGE analysis," Resource and Energy Economics, Elsevier, vol. 29(2), pages 137-158, May.
    4. Newell, Richard G. & Jaffe, Adam B. & Stavins, Robert N., 2006. "The effects of economic and policy incentives on carbon mitigation technologies," Energy Economics, Elsevier, vol. 28(5-6), pages 563-578, November.
    5. Lutz, Christian & Meyer, Bernd & Nathani, Carsten & Schleich, Joachim, 2005. "Endogenous technological change and emissions: the case of the German steel industry," Energy Policy, Elsevier, vol. 33(9), pages 1143-1154, June.
    6. Valentina Bosetti & Marzio Galeotti & Alessandro Lanza, 2006. "How consistent are alternative short-term climate policies with long-term goals?," Climate Policy, Taylor & Francis Journals, vol. 6(3), pages 295-312, May.
    7. Shiell, Leslie & Lyssenko, Nikita, 2014. "Climate policy and induced R&D: How great is the effect?," Energy Economics, Elsevier, vol. 46(C), pages 279-294.
    8. Greiner, Alfred & Semmler, Willi, 2005. "Economic growth and global warming: A model of multiple equilibria and thresholds," Journal of Economic Behavior & Organization, Elsevier, vol. 57(4), pages 430-447, August.
    9. Greiner, Alfred, 2005. "Anthropogenic climate change and abatement in a multi-region world with endogenous growth," Ecological Economics, Elsevier, vol. 55(2), pages 224-234, November.
    10. Radulescu, Doina & Stimmelmayr, Michael, 2010. "The impact of the 2008 German corporate tax reform: A dynamic CGE analysis," Economic Modelling, Elsevier, vol. 27(1), pages 454-467, January.

    More about this item

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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