Induced Technical Change in Energy and Environmental Modeling: Analytic Approaches and Policy Implications

Posted: 5 Nov 2011

See all articles by Michael Grubb

Michael Grubb

Imperial College London - Imperial College of Science, Technology and Medicine

Jonathan Köhler

University of Cambridge - Faculty of Economics and Politics

Dennis Anderson

Imperial College London

Date Written: November 2002

Abstract

Abstract Technical change in the energy sector is central for addressing long-term environmental issues, including climate change. Most models of energy, economy, and the environment (E3 models) use exogenous assumptions for this. This is an important weakness. We show that there is strong evidence that technical change in the energy sector is to an important degree induced by market circumstances and expectations and, by implication, by environmental policies such as CO2 abatement. We classify the main approaches to modeling such induced technical change and review results with particular reference to climate change. Among models with learning by doing, weak responses are only obtained from models that are highly aggregated (lack technological diversity) and/or that equate rates of return to innovation across sectors. Induced technical change broadens the scope of efficient policies toward mitigation, including not just research and development and aggregated market instruments but a range of sectoral-based policies potentially at divergent marginal costs. Furthermore, to the extent that cleaner technologies induced by mitigation diffuse globally, a positive spillover will result that will tend to offset the substitution-based negative spillover usually hypothesized to result from the migration of polluting industries. Initial explorations suggest that this effect could also be very large.

Suggested Citation

Grubb, Michael and Köhler, Jonathan and Anderson, Dennis, Induced Technical Change in Energy and Environmental Modeling: Analytic Approaches and Policy Implications (November 2002). Available at SSRN: https://ssrn.com/abstract=1955006 or http://dx.doi.org/10.1146/annurev.energy.27.122001.083408

Michael Grubb (Contact Author)

Imperial College London - Imperial College of Science, Technology and Medicine ( email )

Exhibition Road
London, SW7 2AZ
United Kingdom

Jonathan Köhler

University of Cambridge - Faculty of Economics and Politics ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom

Dennis Anderson

Imperial College London ( email )

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

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