FEEM working papers "Note di lavoro" series
2009 .008

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


Authors: Lea Nicita, Carlo Carraro, Emanuele Massetti
Series: Climate Change and Sustainable Development
Editor: Carlo Carraro
Type: Journal
Keywords: Technical Change,Climate Policy,Stabilization Cost,R&D Investments
JEL n.: C72,H23,Q25,Q28
JEL: The Energy Journal, Special Issue. Climate Change Policies After 2012
Pages: Special Issue 2, pp. 7-38
Date: 10/2009

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: Carlo Carraro, Emanuele Massetti, Lea Nicita, How Does Climate Policy Affect Technical Change? An Analysis of the Direction and Pace of Technical Progress in a Climate-Economy Model, The Quarterly Journal of the IAEE's Energy Economics Education Foundation, Volume 30, Special Issue N. 2, http://www.iaee.org/en/publications/ejarticle.aspx?id=2346

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