Directed Technological Change and Energy Efficiency Improvements

47 Pages Posted: 12 Sep 2015

See all articles by Jan Witajewski

Jan Witajewski

Fondazione Eni Enrico Mattei (FEEM)

Elena Verdolini

Fondazione Eni Enrico Mattei (FEEM), CMCC - Euro Mediterranean Centre for Climate Change

Massimo Tavoni

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

Date Written: June 30, 2015

Abstract

This paper applies the Directed Technical Change (DTC) framework to study improvements in the efficiency of energy use. We present a theoretical model which (1) shows that the demand for energy is shifted down by innovations in energy intensive sectors and (2) highlights the drivers of innovative activity in these sectors. We then estimate the model through an empirical analysis of patent and energy data. Our contribution is fivefold. First, our model shows that under very general assumptions information about energy expenditures, knowledge spillovers and the parameters governing the R&D process are sufficient to predict the R&D effort in efficiency improving technologies. Second, we pin down the conditions for a log-linear relation between energy expenditure and the R&D effort. Third, the calibration of the model provides clear evidence that the value of the energy market as well as international and inter-temporal spillovers play a significant role in determining the level of innovative activity. Fourth, we show that innovative activity in energy intensive sectors shifts down the (Marshallian) demand for energy. Finally, we show that due to the streamlined modelling framework we adopt, the point estimates from our regression can potentially be used to calibrate any model of DTC in the context of energy consumption.

Keywords: Energy Efficiency, Directed Technological Change, Induced Innovations, Patents Econometrics

JEL Classification: O31, O33, Q43

Suggested Citation

Witajewski, Jan and Verdolini, Elena and Tavoni, Massimo, Directed Technological Change and Energy Efficiency Improvements (June 30, 2015). FEEM Working Paper No. 078.2015, Available at SSRN: https://ssrn.com/abstract=2659034 or http://dx.doi.org/10.2139/ssrn.2659034

Jan Witajewski (Contact Author)

Fondazione Eni Enrico Mattei (FEEM) ( email )

C.so Magenta 63
Milano, 20123
Italy

Elena Verdolini

Fondazione Eni Enrico Mattei (FEEM), CMCC - Euro Mediterranean Centre for Climate Change ( email )

C.so Magenta 63
Milano, 20123
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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