How Does Climate Policy Affect Technical Change - An Analysis of the Direction and Pace of Technical Progress in a Climate-Economy Model

41 Pages Posted: 21 Apr 2009

See all articles by Carlo Carraro

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

Lea Nicita

Fondazione Eni Enrico Mattei (FEEM)

Date Written: February 6, 2009

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.

Keywords: Technical Change, Climate Policy, Stabilization Cost, R&D Investments

JEL Classification: C72, H23, Q25, Q28

Suggested Citation

Carraro, Carlo and Massetti, Emanuele and Nicita, Lea, How Does Climate Policy Affect Technical Change - An Analysis of the Direction and Pace of Technical Progress in a Climate-Economy Model (February 6, 2009). FEEM Working Paper No. 8.2009; CMCC Research Paper No. 58. Available at SSRN: https://ssrn.com/abstract=1338804 or http://dx.doi.org/10.2139/ssrn.1338804

Carlo Carraro

Fondazione Eni Enrico Mattei (FEEM) ( email )

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Green Growth Knowledge Platform ( email )

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International Center for Climate Governance ( email )

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Emanuele Massetti

Georgia Institute of Technology ( email )

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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

Lea Nicita (Contact Author)

Fondazione Eni Enrico Mattei (FEEM) ( email )

C.so Magenta 63
Milano, 20123
Italy

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