Top > Research / Publications > ESRI Discussion Paper > No.229
 
ESRI Discussion Paper Series No.229

“How Does Climate Policy Affect Technical Change? —An Analysis of the Direction and Pace of Technical Progress in a Climate-Economy Model” (Fondazione Eni Enrico Mattei)

Professor Carlo Carraro
Project Leader University of Venice and Fondazione Eni Enrico Mattei, Vice Chair IPCC WG III
Dr. Emanuele Massetti
Fondazione Eni Enrico Mattei
Dr. Lea Nicita
Fondazione Eni Enrico Mattei
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.


Structure of the whole text (PDF-Format 1 File)
full text (319KB)
1.  INTRODUCTION --------------------------------------------------------------------------- 2  
2.  DIRECTED TECHNICAL CHANGE IN THE WITCH MODEL --------------------------- 6  
   2.1 Short Model Description ------------------------------------------------------------------ 6  
   2.2 Directed Technical Change in the WITCH model ------------------------------------------ 7  
   2.3 The R&D Sectors ------------------------------------------------------------------------- 8  
3.  CALIBRATION ------------------------------------------------------------------------------ 9  
4.  BASELINE SCENARIO --------------------------------------------------------------------- 12  
5.  STABILIZATION POLICY ----------------------------------------------------------------- 17  
   5.1 Gross World Product, Consumption and Total Investments. ------------------------------- 17  
   5.2 Energy and Non-Energy Investments ------------------------------------------------------ 19  
   5.3 Energy R&D and Non-Energy R&D Investments. ---------------------------------------- 20  
   5.4 Induced Technical Change and the Cost of Climate Policy.. ------------------------------- 25  
6.  CONCLUSIONS ---------------------------------------------------------------------------- 26  
Appendix A: Model Equations and List of Variables ----------------------------------------------- 29  
Appendix B: Simplified WITCH model and Proof of Proposition 1 -------------------------------- 33  
Appendix C: Sensitivity Analysis ------------------------------------------------------------------ 35  
REFERENCES ----------------------------------------------------------------------------------- 38  

Up   Toppage   Research / Publications   ESRI Discussion Paper