International Energy R&D Spillovers and the Economics of Greenhouse Gas Atmospheric Stabilization

29 Pages Posted: 30 May 2008  

Valentina Bosetti

Fondazione Eni Enrico Mattei (FEEM); 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

Fondazione Eni Enrico Mattei (FEEM) & Euro-Mediterranean Center for Climate Change; Georgia Institute of Technology; CESifo (Center for Economic Studies and Ifo Institute)

Massimo Tavoni

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

Multiple version iconThere are 2 versions of this paper

Date Written: August 2007

Abstract

It is widely recognized that technological change has the potential to reduce GHG emissions without compromising economic growth; hence, any better understanding of the process of technological innovation is likely to increase our knowledge of mitigation possibilities and costs. This paper explores how international knowledge flows affect the dynamics of the domestic R&D sector and the main economic and environmental variables. The analysis is performed using WITCH, a dynamic regional model of the world economy, in which energy technical change is endogenous. The focus is on disembodied energy R&D international spillovers. The knowledge pool from which regions draw foreign ideas differs between High Income and Low Income countries. Absorption capacity is also endogenous in the model. The basic questions are as follows. Do knowledge spillovers enhance energy technological innovation in different regions of the world? Does the speed of innovation increase? Or do free-riding incentives prevail and international spillovers crowd out domestic R&D efforts? What is the role of domestic absorption capacity and of policies designed to enhance it? Do greenhouse gas stabilization costs drop in the presence of international technological spillovers? The new specification of the WITCH model presented in this paper enables us to answer these questions. Our analysis shows that international knowledge spillovers tend to increase free-riding incentives and decrease the investments in energy R&D. The strongest cuts in energy R&D investments are recorded among High Income countries, where international knowledge flows crowd out domestic R&D efforts. The overall domestic pool of knowledge, and thus total net GHG stabilization costs, remain largely unaffected. International spillovers, however, are also an important policy channel. We therefore analyze the implication of a policy mix in which climate policy is combined with a technology policy designed to enhance absorption capacity in developing countries. Significant positive impacts on the costs of stabilising GHG concentrations are singled out. Finally, a sensitivity analysis shows that High Income countries are more responsive than Low Income countries to changes in the parameters and thus suggests to focus additional empirical research efforts on the former.

Keywords: Climate policy, Energy R&D, GHG stabilisation, International R&D Spillovers

JEL Classification: H0, H1, H2

Suggested Citation

Bosetti, Valentina and Carraro, Carlo and Massetti, Emanuele and Tavoni, Massimo, International Energy R&D Spillovers and the Economics of Greenhouse Gas Atmospheric Stabilization (August 2007). , Vol. , pp. -, 2007. Available at SSRN: https://ssrn.com/abstract=1138539

Valentina Bosetti (Contact Author)

Fondazione Eni Enrico Mattei (FEEM) ( email )

C.so Magenta 63
Milano, 20123
Italy

Bocconi University ( email )

Via Gobbi 5
Milan, 20136
Italy

CMCC - Euro Mediterranean Centre for Climate Change

Viale Gallipoli, 49
Lecce, 73100
Italy

Carlo Carraro

Fondazione Eni Enrico Mattei (FEEM) ( email )

Isola di San Giorgio Maggiore 8
Venezia, 30124
Italy
+39 04 12700460 (Phone)
+39 04 12700412 (Fax)

Ca' Foscari University of Venice ( email )

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Venice, 30121
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HOME PAGE: http://www.carlocarraro.org/

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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Munich, DE-81679
Germany

Centre for European Policy Studies, Brussels

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Belgium
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Green Growth Knowledge Platform ( email )

International Environment House
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HOME PAGE: http://www.greengrowthknowledge.org/

International Center for Climate Governance ( email )

Island of San Giorgio Maggiore 8
Venice, I-30124
Italy

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

Emanuele Massetti

Fondazione Eni Enrico Mattei (FEEM) & Euro-Mediterranean Center for Climate Change

Corso Magenta 63
20123 Milan
Italy

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

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
United States

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