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 nonenergy R&D.
AcemogluD. (2002). “Directed Technical Change.” Review of Economic Studies, 69:781-809.
2.
BosettiV.CarraroC.MassettiE.TavoniM. (2008). “International Energy R&D Spillovers and the Economics of Greenhouse Gas Atmospheric Stabilization.” Energy Economics, 30(6): 2912-2929.
3.
BosettiV.CarraroC.GaleottiM.MassettiE.TavoniM., (2006). “WITCH: A World Induced Technical Change Hybrid Model.” The Energy Journal, Special Issue on Hybrid Modeling of Ener-gy-Environment Policies: Reconciling Bottom-up and Top-down, 13-38.
4.
BosettiV.MassettiE.TavoniM. (2007). “The WITCH Model: Structure, Baseline, Solutions.” FEEM Working Paper No 10/2007.
BuonannoP.CarraroC.GaleottiM. (2003). “Endogenous Induced Technical Change and the Costs of Kyoto.” Resource and Energy Economics, 25(1): 11-34.
7.
CarraroC.GrubbM.SchellnhuberJ. (2006). “Technological Change for Atmospheric Stabilization.” The Energy Journal, Special issue on “Endogenous Technological Change and the Economics of Atmospheric Stabilisation ”, pp. 1-16.
8.
CarraroC.MassettiE.NicitaL. (2009). “How Does Climate Policy Affect Technical Change? An Analysis of the Direction and Pace of Technical Progress in a Climate-Economy Model.” FEEM Working Paper No 08/2009.
9.
ChangK. (1994). “Capital-Energy Substitution and the Multi-Level CES Production Function.” Energy Economics, 16(1): 22-26.
10.
CoeD.HelpmanElhanan (1995). “International R&D Spillovers.” European Economic Review, 39(5): 859-887.
11.
Congressional Budget Office (2005). “R&D Productivity and Growth.” The Congress of the United States, Congressional Budget Office, Background Paper, June.
12.
EdenhoferO.CarraroC.KoehlerJ.GrubbM. (eds) (2006). “Endogenous Technological Change and the Economics of Atmospheric Stabilisation.” ASpecial Issue of The Energy Journal, Volume 27.
13.
GerlaghR. (2008). “A Climate-Change Policy Induced Shift From Innovations in Carbon-Energy Production to Carbon-Energy Savings.” Energy Economics, 30(2): 425-448.
14.
GillinghamK.NewellR.G.PizerW.A. (2007). “Modeling Endogenous Technological Change for Climate Policy Analysis.” Resources for the Future, Discussion Paper 07-14, May2007.
15.
GoolsbeeA. (1998). “Does Government R&D Policy Mainly Benefit Scientists and Engineers?” The American Economic Review, 88(2): 298-302
16.
GoulderL.H.SchneiderS.H. (1999). “Induced Technological Change and the Attractiveness of CO2 Abatement Policies.” Resource and Energy Economics, 21: 211-253.
17.
KemfertC. (1998). “Estimated Production Elasticities of a Nested CES Production Function Approach for Germany.” Energy Economics, 20(3): 249-64.
18.
KemfertC.WelschH. (2000). “Energy-Capital-Labor Substitution and the Economic Effects of CO2 Abatement: Evidence for Germany.” Journal of Policy Modeling, 22(6): 641-60.
19.
JonesC. (1995), “R&D-Based Models of Economic Growth”, Journal of Political Economy, 103(2): 759-84.
20.
LichtenbergF. (1992). “R&D Investment and International Productivity Differences.” NBER Working Paper no. 4161.
21.
LoschelA. (2002). “Technological Change in Economic Models of Environmental Policy: A Survey.” Ecological Economics, 43(2-3): 105-126.
22.
MankiwN.G. (2003). Macroeconomics. New York, NY: Worth Publishers, c2003
23.
ManneA.RichelsR. (1992). Buying Greenhouse Insurance: The Economic Costs of CO2 Emission Limits. Cambridge MA: MIT Press.
24.
ManneA.MendelsohnR.RichelsR. (1995). “MERGE: a Model for Evaluating Regional and Global Effects of GHG Reduction Policies.” Energy Policy, 23(1): 17-34.
25.
MarkandyaA.Pedroso-GalinatoS. (2007). “How substitutable is natural capital?” Environmental and Resource Economics, 37(1): 297-312.
26.
NordhausW.D. (2002). “Modeling Induced Innovation in Climate Change Policy.” In A. Grubler, N. Nakicenovic and W.D. Nordhaus, Modeling Induced Innovation in Climate Change Policy, Resources for the Future Press, Washington, 2002.
27.
OkagawaA.BanK. (2008). “Estimation of substitution elasticities for CGE models.” Discussion Papers in Economics and Business 08-16, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
28.
PoppD. (2004). “ENTICE: Endogenous Technological Change in the DICE Model of Global Warming.” Journal of Environmental Economics and Management, 48(1): 742-768.
29.
PrywesM. (1986). “A Nested CES Approach to Capital-Energy Substitution.” Energy Economics, 8(3): 22-28.
30.
RomerP. (1990). “Endogenous Technological Change.” Journal of Political Economy, 98(S5): 71-102.
31.
Sue WingI. (2003). “Induced Technical Change and the Cost of Climate Policy.” MIT Joint Program on the Science and Policy of Global Change, Report No. 102, September2003.
32.
van der WerfE.(2007). “Production Functions for Climate Policy Modeling: An Empirical Analysis.” Energy Economics, 30(6): 2964-2979.
33.
WhalleyJ.WigleyR. (1990). “The International Incidence of Carbon Taxes”, Paper presented at the Conference on “Economic Policy Responses to Global Warming”, Rome, 4-6 October.
