Stabilisation Targets, Technical Change and the Macroeconomic Costs of Climate Change Control

34 Pages Posted: 20 Jan 2006 Last revised: 1 Mar 2015

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 1, 2006

Abstract

The issue of greenhouse gas (GHG) stabilization stands on three critical open questions. Namely, what are the impacts deriving from different levels of climate change and their distribution. What are the levels at which GHG concentration should be stabilized in order to avoid unacceptable impacts. And, finally, what are the costs and what are the instruments available to reach such stabilization targets. In the present paper, we address the latter question, in the specific attempt of shedding some light on the debated role of technological progress in lowering the costs of GHG stabilization. In particular, we use an optimal growth climate-economy model, where technical change is endogenously driven by learning by researching and learning by doing. In the model, when an ambitious stabilization target has to be reached, some additional technological innovation and diffusion is induced. The magnitude of this induced effect substantially affects the costs of stabilizing greenhouse gasses and may even make a well-designed climate policy a win-win strategy. A sensitivity analysis on the model crucial parameters is performed to account for structural and parametric uncertainties on learning effects, on the relationship between knowledge accumulation and the energy and carbon intensity of the economic system, and on the crowding out of investments in the energy sector R&D with respect to other research fields.

Keywords: Climate policy, Environmental modelling, Integrated assessment, Technical change

JEL Classification: H0, H2, H3

Suggested Citation

Bosetti, Valentina and Carraro, Carlo and Galeotti, Marzio, Stabilisation Targets, Technical Change and the Macroeconomic Costs of Climate Change Control (January 1, 2006). FEEM Working Paper No. 2.2006, Available at SSRN: https://ssrn.com/abstract=876423 or http://dx.doi.org/10.2139/ssrn.876423

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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International Center for Climate Governance ( email )

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Marzio Galeotti

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

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