Optimal Energy Investment and R&D Strategies to Stabilise Greenhouse Gas Atmospheric Concentrations

29 Pages Posted: 22 Oct 2007 Last revised: 18 Jul 2014

See all articles by Valentina Bosetti

Valentina Bosetti

Bocconi University; CMCC - Euro Mediterranean Centre for Climate Change

Carlo Carraro

Fondazione Eni Enrico Mattei (FEEM); Ca' Foscari University of Venice; CMCC - Euro Mediterranean Centre for Climate Change (Climate Policy Division); IPCC; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); Centre for European Policy Studies, Brussels; Green Growth Knowledge Platform; International Center for Climate Governance

Emanuele Massetti

Georgia Institute of Technology; CESifo (Center for Economic Studies and Ifo Institute); CMCC - Euro Mediterranean Centre for Climate Change

Massimo Tavoni

Fondazione Eni Enrico Mattei (FEEM); Princeton University - Princeton Environmental Institute

Multiple version iconThere are 2 versions of this paper

Date Written: October 1, 2007

Abstract

The stabilisation of GHG atmospheric concentrations at levels expected to prevent dangerous climate change has become an important, global, long-term objective. It is therefore crucial to identify a cost-effective way to achieve this objective. In this paper we use WITCH, a hybrid climate-energy-economy model, to obtain a quantitative assessment of some cost-effective strategies that stabilise CO2 concentrations at 550 or 450 ppm. In particular, this paper analyses the energy investment and R&D policies that optimally achieve these two GHG stabilisation targets (i.e. the future optimal energy mix consistent with the stabilisation of GHG atmospheric concentrations at 550 and 450 ppm). Given that the model accounts for interdependencies and spillovers across 12 regions of the world, optimal strategies are the outcome of a dynamic game through which inefficiency costs induced by global strategic interactions can be assessed. Therefore, our results are somehow different from previous analyses of GHG stabilisation policies, where a central planner or a single global economy are usually assumed. In particular, the effects of free-riding incentives in reducing emissions and in investing in R&D are taken into account. Technical change being endogenous in WITCH, this paper also provides an assessment of the implications of technological evolution in the energy sector of different stabilisation scenarios. Finally, this paper quantifies the net costs of stabilising GHG concentrations at different levels, for different allocations of permits and for different technological scenarios. In each case, the optimal long-term investment strategies for all available energy technologies are determined. The case of an unknown backstop energy technology is also analysed.

Keywords: Climate Policy, Energy R&D, Investments, Stabilisation Costs

JEL Classification: H0, H2, H3, H4, O3, Q4

Suggested Citation

Bosetti, Valentina and Carraro, Carlo and Massetti, Emanuele and Tavoni, Massimo, Optimal Energy Investment and R&D Strategies to Stabilise Greenhouse Gas Atmospheric Concentrations (October 1, 2007). FEEM Working Paper No. 95.2007; University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 22/WP/2007; CESifo Working Paper Series No. 2133; CMCC Research Paper No. 13. Available at SSRN: https://ssrn.com/abstract=1023548 or http://dx.doi.org/10.2139/ssrn.1023548

Valentina Bosetti (Contact Author)

Bocconi University

Via Gobbi 5
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CMCC - Euro Mediterranean Centre for Climate Change

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Carlo Carraro

Fondazione Eni Enrico Mattei (FEEM) ( email )

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CMCC - Euro Mediterranean Centre for Climate Change (Climate Policy Division) ( email )

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IPCC ( email )

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Centre for Economic Policy Research (CEPR)

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CESifo (Center for Economic Studies and Ifo Institute)

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Centre for European Policy Studies, Brussels

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Green Growth Knowledge Platform ( email )

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International Center for Climate Governance ( email )

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HOME PAGE: http://www.iccgov.org/

Emanuele Massetti

Georgia Institute of Technology ( email )

685 Cherry St.
Atlanta, GA 30332-0345
United States

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

CMCC - Euro Mediterranean Centre for Climate Change

via Augusto Imperatore, 16
Lecce, I-73100
Italy

Massimo Tavoni

Fondazione Eni Enrico Mattei (FEEM) ( email )

Corso Magenta 63
20123 Milan
Italy

Princeton University - Princeton Environmental Institute

22 Chambers Street
Princeton, NJ 08544-0708
United States

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