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Directed Technical Change and Climate Policy

Author

Listed:
  • Otto, Vincent M.
  • Loschel, Andreas
  • Reilly, John M.

Abstract

This paper studies the cost effectiveness of climate policy if there are technology externalities. For this purpose, we develop a forward-looking CGE model that captures empirical links between CO2 emissions associated with energy use, directed technical change and the economy. We find the cost-effective climate policy to include a combination of R&D subsidies and CO2 emission constraints, although R&D subsidies raise the shadow value of the CO2 constraint (i.e. CO2 price) because of a strong rebound effect from stimulating innovation. Furthermore, we find that CO2 constraints differentiated toward CO2-intensive sectors are more cost effective than constraints that generate uniform CO2 prices among sectors. Differentiated CO2 prices, through technical change and concomitant technology externalities, encourage growth in the non-CO2 intensive sectors and discourage growth in CO2-intensive sectors. Thus, it is cost effective to let the latter bear relatively more of the abatement burden. This result is robust to whether emission constraints, R&D subsidies or combinations of both are used to reduce CO2 emissions.

Suggested Citation

  • Otto, Vincent M. & Loschel, Andreas & Reilly, John M., 2006. "Directed Technical Change and Climate Policy," Climate Change Modelling and Policy Working Papers 12037, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemcc:12037
    DOI: 10.22004/ag.econ.12037
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    File URL: https://ageconsearch.umn.edu/record/12037/files/wp060081.pdf
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    Cited by:

    1. Pierre Besson & Nina Kousnetzoff, 2009. "Les impacts économiques du changement climatique : enjeux de modélisation," Working Papers 2009-36, CEPII research center.
    2. Otto, Vincent M. & Löschel, Andreas, 2008. "Technological Uncertainty and Cost-effectiveness of CO2 Emission Trading Schemes," ZEW Discussion Papers 08-050, ZEW - Leibniz Centre for European Economic Research.
    3. Pizer, William A. & Popp, David, 2008. "Endogenizing technological change: Matching empirical evidence to modeling needs," Energy Economics, Elsevier, vol. 30(6), pages 2754-2770, November.
    4. Otto, Vincent M. & Reilly, John, 2008. "Directed technical change and the adoption of CO2 abatement technology: The case of CO2 capture and storage," Energy Economics, Elsevier, vol. 30(6), pages 2879-2898, November.
    5. Gillingham, Kenneth & Newell, Richard G. & Pizer, William A., 2008. "Modeling endogenous technological change for climate policy analysis," Energy Economics, Elsevier, vol. 30(6), pages 2734-2753, November.
    6. Cheung, Grace & Davies, Peter J. & Bassen, Alexander, 2019. "In the transition of energy systems: What lessons can be learnt from the German achievement?," Energy Policy, Elsevier, vol. 132(C), pages 633-646.
    7. Heggedal, Tom-Reiel & Jacobsen, Karl, 2011. "Timing of innovation policies when carbon emissions are restricted: An applied general equilibrium analysis," Resource and Energy Economics, Elsevier, vol. 33(4), pages 913-937.

    More about this item

    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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