The Dynamics of Carbon and Energy Intensity in a Model of Endogenous Technical Change

21 Pages Posted: 2 Feb 2005

See all articles by Valentina Bosetti

Valentina Bosetti

Bocconi University; CMCC - Euro Mediterranean Centre for Climate Change

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

Marzio Galeotti

University of Milan - Department of Environmental Science and Policy (ESP); GREEN - Centre for Research on Geography, Resources, Environment, Energy & Networks

Date Written: January 2005

Abstract

In recent years, a large number of papers have explored different attempts to endogenise technical change in climate models. The obvious reason is that technical change is widely considered the main route to achieving a significant reduction in global GHG emissions. This recent literature has emphasized that four factors - two inputs and two outputs - should play a major role when modelling technical change in climate models. The two inputs are R&D investments and Learning by Doing, the two outputs are energy-saving and fuel switching. Indeed, R&D investments and Learning by Doing are the main drivers of a climate-friendly technical change that eventually affect both energy intensity and fuel-mix. In this paper, we present and discuss an extension of the FEEM-RICE model in which these four factors are explicitly accounted for. In our new specification of endogenous technical change, an index of technical progress depends on both Learning by Researching and Learning by Doing. This index enters the equations defining energy intensity (i.e. the amount of carbon energy required to produce one unit of output) and carbon intensity (i.e. the level of carbonization of primarily used fuels). This new specification is embodied in the RICE 99 integrated assessment climate model and then used to generate a business as usual scenario and to analyze the relationship between climate policy and technical change. Sensitivity analysis is performed on different key parameters of the energy module in order to obtain crucial insights into the relative importance of the main channels through which technological changes affects the impact of human activities on climate. In addition, the effectiveness of different possible ways of combining Learning by Researching and Learning by Doing is also investigated.

Keywords: Climate Policy, Environmental Modelling, Integrated Assessment, Technical Change

JEL Classification: H0, H2, H3

Suggested Citation

Bosetti, Valentina and Carraro, Carlo and Galeotti, Marzio, The Dynamics of Carbon and Energy Intensity in a Model of Endogenous Technical Change (January 2005). FEEM Working Paper No. 06.05; University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 11/06. Available at SSRN: https://ssrn.com/abstract=650024 or http://dx.doi.org/10.2139/ssrn.650024

Valentina Bosetti (Contact Author)

Bocconi University

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CMCC - Euro Mediterranean Centre for Climate Change

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Carlo Carraro

Fondazione Eni Enrico Mattei (FEEM) ( email )

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CMCC - Euro Mediterranean Centre for Climate Change (Climate Policy Division) ( email )

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Green Growth Knowledge Platform ( email )

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International Center for Climate Governance ( email )

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Marzio Galeotti

University of Milan - Department of Environmental Science and Policy (ESP) ( email )

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HOME PAGE: http://www.unimi.it/chiedove/cv/ENG/marzio_galeotti.pdf?1531977155891

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