Human Capital, Innovation, and Climate Policy: An Integrated Assessment

31 Pages Posted: 16 Apr 2012

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

Enrica De Cian

Fondazione Eni Enrico Mattei (FEEM); CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici

Massimo Tavoni

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

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Date Written: April 16, 2012

Abstract

This paper looks at the interplay between human capital and innovation in the presence of climate and educational policies. Using recent empirical estimates, human capital and general purpose R&D are introduced in an integrated assessment model that has been extensively applied to study climate change mitigation. Our results suggest that climate policy stimulates general purpose as well as clean energy R&D but reduces the incentive to invest in human capital formation. Human capital increases the productivity of labor and the complementarity between labor and energy drives its pollution-using effect (direct effect). When human capital is an essential input in the production of generic and energy dedicated knowledge, the crowding out induced by climate policy is mitigated, thought not completely offset (indirect effect). The pollution-using implications of the direct effect prevail over the indirect contribution of human capital to the creation of new and cleaner knowledge. A policy mix that combines educational as well as climate objectives offsets the human capital crowding-out with a moderate, short-term consumption loss. Human capital is complement to all forms of innovation and an educational policy stimulates both energy and general purpose innovation. This result has important policy implications considering the growing concern that effective climate policy is conditional on solid economic development and therefore it needs to be supplemented by other policy targets.

Keywords: climate policy, innovation, human capital

JEL Classification: O33, O41, Q43

Suggested Citation

Carraro, Carlo and De Cian, Enrica and Tavoni, Massimo, Human Capital, Innovation, and Climate Policy: An Integrated Assessment (April 16, 2012). FEEM Working Paper No. 18.2012. Available at SSRN: https://ssrn.com/abstract=2040652 or http://dx.doi.org/10.2139/ssrn.2040652

Carlo Carraro (Contact Author)

Fondazione Eni Enrico Mattei (FEEM) ( email )

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Enrica De Cian

Fondazione Eni Enrico Mattei (FEEM) ( email )

Campo S. M. Formosa, Castello 5252
Venice, 30122
Italy

CMCC - Centro Euro-Mediterraneo sui Cambiamenti Climatici ( email )

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

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