A Climate-Change Policy Induced Shift from Innovations in Energy Production to Energy Savings

28 Pages Posted: 28 Oct 2004

See all articles by Reyer Gerlagh

Reyer Gerlagh

Tilburg University - Tilburg University School of Economics and Management

Date Written: October 2004

Abstract

We develop an endogenous growth model with capital, labor and energy as production factors and three productivity variables that measure accumulated innovations for energy production, energy savings, and neutral growth. All markets are complete and perfect, except for research, for which we assume that the marginal social value exceeds marginal costs by factor four. The model constants are calibrated so that the model reproduces the relevant trends over the 1970-2000 period. The model contains a simple climate module, and is used to assess the impact of Induced Technological Change (ITC) for a policy that aims at a maximum level of atmospheric CO2 concentration (450 ppmv). ITC is shown to reduce the required carbon tax by about a factor 2, and to reduce costs of such a policy by about factor 10. Numerical simulations show that knowledge accumulation shifts from energy production to energy saving technology.

Keywords: Induced technological change, Environmental taxes, Partial equilibrium

JEL Classification: H23, O31, O41, Q42, Q43

Suggested Citation

Gerlagh, Reyer, A Climate-Change Policy Induced Shift from Innovations in Energy Production to Energy Savings (October 2004). FEEM Working Paper No. 128.04. Available at SSRN: https://ssrn.com/abstract=609763 or http://dx.doi.org/10.2139/ssrn.609763

Reyer Gerlagh (Contact Author)

Tilburg University - Tilburg University School of Economics and Management ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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