FEEM working papers "Note di lavoro" series
2010 .004

Modeling Biased Technical Change.Implications for Climate Policy


Authors: Carlo Carraro, Enrica De Cian, Lea Nicita
Series: Climate Change and Sustainable Development
Editor: Carlo Carraro
Type: Book
Keywords: Technical Change, Climate Policy, Stabilization Cost
JEL n.: C72, H23, Q25, Q28
JEL: in S. Dietz, J. Michie and C. Oughton (eds), The Political Economy of the Environment
Published in: Routledge, London

Abstract

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 themodel are proposed. The starting set-up includes endogenous technical change only in the energy sector. A second version introduces endogenous technical change in both theenergy 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 ofendogenous 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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