FEEM working papers "Note di lavoro" series
2012 .018

Human Capital, Innovation, and Climate Policy: An Integrated Assessment


Authors: Carlo Carraro, Enrica De Cian, Massimo Tavoni
Series: Climate Change and Sustainable Development
Editor: Carlo Carraro
Type: Journal
Keywords: Climate Policy, Innovation, Human capital
JEL n.: O33, O41, Q43
JEL: Environmental Modeling & Assessment
Pages: Volume 19, Issue 2, pp 85-98
Date: 04/2014

Abstract

This paper looks at the interplay between human capital and innovation in the presence of climate and educational policies. Using recent empirical estimates, human capital and general purpose R&D are introduced in an integrated assessment model that has been extensively applied to study climate change mitigation. Our results suggest that climate policy stimulates general purpose as well as clean energy R&D but reduces the incentive to invest in human capital formation. Human capital increases the productivity of labour and the complementarity between labour and energy drives its pollution-using effect (direct effect). When human capital is an essential input in the production of generic and energy dedicated  knowledge, the crowding out induced by climate policy is mitigated, thought not completely offset (indirect effect). The pollution-using implications of the direct effect prevail over the indirect contribution of human capital to the creation of new and cleaner knowledge. A policy mix that combines educational as well as climate objectives offsets the human capital crowding-out with a moderate, short-term consumption loss. Human capital is complement to all forms of innovation and an educational policy stimulates both energy and general purpose innovation. This result has important policy implications considering the growing concern that effective climate policy is conditional on solid economic development and therefore it needs to be supplemented by other policy targets.

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Suggested ciataion: Carraro Carlo, De Cian Enrica, Tavoni Massimo, Human Capital, Innovation, and Climate Policy: an Integrated Assessment, Environmental Modeling & Assessment, April 2014, Volume 19, Issue 2, pp 85-98, http://rd.springer.com/article/10.1007%2Fs10666-013-9385-z

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