FEEM working papers "Note di lavoro" series
2006 .081

Directed Technical Change and Climate Policy


Autori: Vincent M. Otto, Andreas Löschel, John Reilly
Serie: Climate Change and Sustainable Development
Editor: Carlo Carraro
Tipo: Journal
Parole chiave: Directed Technical Change,Climate Policy,Computable General Equilibrium Model,R&D
Numero JEL: D58,H21,H23,O33,O38
JEL: Energy Economics
Pagine: Vol. 30, No. 6, pp. 2855-78
Data: 11/2008

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.

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