IDEAS home Printed from https://ideas.repec.org/p/ags/feemdp/59376.html
   My bibliography  Save this paper

Modeling Biased Technical Change. Implications for Climate Policy

Author

Listed:
  • Carraro, Carlo
  • De Cian, Enrica
  • Nicita, Lea

Abstract

Climate-economy models aiming at quantifying the costs and effects of climate change impacts and policies have become important tools for climate policy decision-making. Although there are several important dimensions along which models differ, this paper focuses on a key component of climate change economics and policy, namely technical change. This paper tackles the issues of whether technical change is biased towards the energy sectors, the importance of the elasticity of substitution between factors in determining this bias and how mitigation policy is likely to affect it. The analysis is performed using the World Induced Technical Change model, WITCH. Three different versions of the model are proposed. The starting set-up includes endogenous technical change only in the energy sector. A second version introduces endogenous technical change in both the energy and non-energy sectors. A third version of the model embodies different sources of technical change, namely R&D and human capital. Although different formulations of endogenous technical change have only a minor influence on climate policy costs, the macroeconomic effects on knowledge and human capital formation can vary greatly.

Suggested Citation

  • Carraro, Carlo & De Cian, Enrica & Nicita, Lea, 2010. "Modeling Biased Technical Change. Implications for Climate Policy," Sustainable Development Papers 59376, Fondazione Eni Enrico Mattei (FEEM).
    • Handle: RePEc:ags:feemdp:59376
    DOI: 10.22004/ag.econ.59376
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/59376/files/NDL2010-004.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.59376?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Lopez Ramon, 1994. "The Environment as a Factor of Production: The Effects of Economic Growth and Trade Liberalization," Journal of Environmental Economics and Management, Elsevier, vol. 27(2), pages 163-184, September.
    2. Bosetti, Valentina & Carraro, Carlo & Massetti, Emanuele & Tavoni, Massimo, 2008. "International energy R&D spillovers and the economics of greenhouse gas atmospheric stabilization," Energy Economics, Elsevier, vol. 30(6), pages 2912-2929, November.
    3. Kemfert, Claudia, 1998. "Estimated substitution elasticities of a nested CES production function approach for Germany," Energy Economics, Elsevier, vol. 20(3), pages 249-264, June.
    4. Carraro, Carlo & Bosetti, Valentina & Massetti, Emanuele & Tavoni, Massimo, 2007. "Optimal Energy Investment and R&D Strategies to Stabilise Greenhouse Gas Atmospheric Concentrations," CEPR Discussion Papers 6549, C.E.P.R. Discussion Papers.
    5. Carlo Carraro & Emanuele Massetti & Lea Nicita, 2009. "How Does Climate Policy Affect Technical Change? An Analysis of the Direction and Pace of Technical Progress in a Climate-Economy Model," The Energy Journal, , vol. 30(2_suppl), pages 7-38, December.
    6. Brock, William A. & Taylor, M. Scott, 2005. "Economic Growth and the Environment: A Review of Theory and Empirics," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 28, pages 1749-1821, Elsevier.
    7. Valentina Bosetti & Carlo Carraro & Marzio Galeotti & Emanuele Massetti & Massimo Tavoni, 2006. "WITCH. A World Induced Technical Change Hybrid Model," Working Papers 2006_46, Department of Economics, University of Venice "Ca' Foscari".
    8. Nordhaus, William D & Yang, Zili, 1996. "A Regional Dynamic General-Equilibrium Model of Alternative Climate-Change Strategies," American Economic Review, American Economic Association, vol. 86(4), pages 741-765, September.
    9. Daron Acemoglu, 2002. "Directed Technical Change," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(4), pages 781-809.
    10. Pindyck, Robert S, 1979. "Interfuel Substitution and the Industrial Demand for Energy: An International Comparison," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 169-179, May.
    11. Grimaud, Andre & Tournemaine, Frederic, 2007. "Why can an environmental policy tax promote growth through the channel of education?," Ecological Economics, Elsevier, vol. 62(1), pages 27-36, April.
    12. Enrica De Cian, 2009. "Factor-Augmenting Technical Change: An Empirical Assessment," Working Papers 2009.18, Fondazione Eni Enrico Mattei.
    13. Sue Wing, Ian, 2006. "Representing induced technological change in models for climate policy analysis," Energy Economics, Elsevier, vol. 28(5-6), pages 539-562, November.
    14. Lans Bovenberg, A. & Smulders, Sjak, 1995. "Environmental quality and pollution-augmenting technological change in a two-sector endogenous growth model," Journal of Public Economics, Elsevier, vol. 57(3), pages 369-391, July.
    15. David Popp, 2002. "Induced Innovation and Energy Prices," American Economic Review, American Economic Association, vol. 92(1), pages 160-180, March.
    16. Marc Nerlove, 1967. "Recent Empirical Studies of the CES and Related Production Functions," NBER Chapters, in: The Theory and Empirical Analysis of Production, pages 55-136, National Bureau of Economic Research, Inc.
    17. Anil Markandya & Suzette Pedroso-Galinato, 2007. "How substitutable is natural capital?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 37(1), pages 297-312, May.
    18. Daisuke Ikazaki, 2006. "R&D, human capital and environmental externality in an endogenous growth model," International Journal of Global Environmental Issues, Inderscience Enterprises Ltd, vol. 6(1), pages 29-46.
    19. Valentina Bosetti & Carlo Carraro & Marzio Galeotti & Emanuele Massetti & Massimo Tavoni, 2006. "A World Induced Technical Change Hybrid Model," The Energy Journal, , vol. 27(2_suppl), pages 13-37, June.
    20. Bosetti, Valentina & Carraro, Carlo & Massetti, Emanuele & Sgobbi, Alessandra & Tavoni, Massimo, 2009. "Optimal energy investment and R&D strategies to stabilize atmospheric greenhouse gas concentrations," Resource and Energy Economics, Elsevier, vol. 31(2), pages 123-137, May.
    21. Raymond Gradus & Sjak Smulders, 1993. "The trade-off between environmental care and long-term growth—Pollution in three prototype growth models," Journal of Economics, Springer, vol. 58(1), pages 25-51, February.
    22. Valentina Bosetti & Emanuele Massetti & Massimo Tavoni, 2007. "The WITCH Model. Structure, Baseline, Solutions," Working Papers 2007.10, Fondazione Eni Enrico Mattei.
    23. Carlo Carraro & Enrica De Cian & Massimo Tavoni, 2009. "Human capital formation and global warming mitigation: evidence from an integrated assessment model," Working Papers 2009_30, Department of Economics, University of Venice "Ca' Foscari".
    24. Pautrel, Xavier, 2012. "Environmental Policy, Education And Growth: A Reappraisal When Lifetime Is Finite," Macroeconomic Dynamics, Cambridge University Press, vol. 16(5), pages 661-685, November.
    25. Griffin, James M & Gregory, Paul R, 1976. "An Intercountry Translog Model of Energy Substitution Responses," American Economic Review, American Economic Association, vol. 66(5), pages 845-857, December.
    26. Blankenau, William F. & Simpson, Nicole B., 2004. "Public education expenditures and growth," Journal of Development Economics, Elsevier, vol. 73(2), pages 583-605, April.
    27. Frank Hettich, 1998. "Growth effects of a revenue-neutral environmental tax reform," Journal of Economics, Springer, vol. 67(3), pages 287-316, October.
    28. Berndt, Ernst R & Wood, David O, 1979. "Engineering and Econometric Interpretations of Energy-Capital Complementarity," American Economic Review, American Economic Association, vol. 69(3), pages 342-354, June.
    29. van der Werf, Edwin, 2008. "Production functions for climate policy modeling: An empirical analysis," Energy Economics, Elsevier, vol. 30(6), pages 2964-2979, November.
    30. Goulder, Lawrence H. & Schneider, Stephen H., 1999. "Induced technological change and the attractiveness of CO2 abatement policies," Resource and Energy Economics, Elsevier, vol. 21(3-4), pages 211-253, August.
    31. Loschel, Andreas, 2002. "Technological change in economic models of environmental policy: a survey," Ecological Economics, Elsevier, vol. 43(2-3), pages 105-126, December.
    32. Gerlagh, Reyer, 2008. "A climate-change policy induced shift from innovations in carbon-energy production to carbon-energy savings," Energy Economics, Elsevier, vol. 30(2), pages 425-448, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zha, Donglan & Kavuri, Anil Savio & Si, Songjian, 2018. "Energy-biased technical change in the Chinese industrial sector with CES production functions," Energy, Elsevier, vol. 148(C), pages 896-903.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carlo Carraro & Enrica De Cian & Massimo Tavoni, 2009. "Human capital formation and global warming mitigation: evidence from an integrated assessment model," Working Papers 2009_30, Department of Economics, University of Venice "Ca' Foscari".
    2. Carlo Carraro & Enrica De Cian & Massimo Tavoni, 2012. "Human Capital, Innovation, and Climate Policy: An Integrated Assessment," Working Papers 2012.18, Fondazione Eni Enrico Mattei.
    3. Carraro, Carlo & De Cian, Enrica & Nicita, Lea & Massetti, Emanuele & Verdolini, Elena, 2010. "Environmental Policy and Technical Change: A Survey," International Review of Environmental and Resource Economics, now publishers, vol. 4(2), pages 163-219, October.
    4. Enrica De Cian, 2009. "Factor-Augmenting Technical Change: An Empirical Assessment," Working Papers 2009.18, Fondazione Eni Enrico Mattei.
    5. CARRARO Carlo & MASSETTI Emanuele & NICITA Lea, 2010. "How Does Climate Policy Affect Technical Change? ?An Analysis of the Direction and Pace of Technical Progress in a Climate-Economy Model (Fondazione Eni Enrico Mattei)," ESRI Discussion paper series 229, Economic and Social Research Institute (ESRI).
    6. Mort Webster & Karen Fisher-Vanden & David Popp & Nidhi Santen, 2017. "Should We Give Up after Solyndra? Optimal Technology R&D Portfolios under Uncertainty," Journal of the Association of Environmental and Resource Economists, University of Chicago Press, vol. 4(S1), pages 123-151.
    7. Naqvi, Asjad & Stockhammer, Engelbert, 2018. "Directed Technological Change in a Post-Keynesian Ecological Macromodel," Ecological Economics, Elsevier, vol. 154(C), pages 168-188.
    8. Bosetti, Valentina & Carraro, Carlo & Duval, Romain & Tavoni, Massimo, 2011. "What should we expect from innovation? A model-based assessment of the environmental and mitigation cost implications of climate-related R&D," Energy Economics, Elsevier, vol. 33(6), pages 1313-1320.
    9. Emanuele Massetti & Lea Nicita, 2010. "The Optimal Climate Policy Portfolio when Knowledge Spills across Sectors," CESifo Working Paper Series 2988, CESifo.
    10. Steve Sorrell, 2014. "Energy Substitution, Technical Change and Rebound Effects," Energies, MDPI, vol. 7(5), pages 1-24, April.
    11. Hübler, Michael & Baumstark, Lavinia & Leimbach, Marian & Edenhofer, Ottmar & Bauer, Nico, 2012. "An integrated assessment model with endogenous growth," Ecological Economics, Elsevier, vol. 83(C), pages 118-131.
    12. De Cian, Enrica, 2006. "International Technology Spillovers in Climate-Economy Models: Two Possible Approaches," Climate Change Modelling and Policy Working Papers 12040, Fondazione Eni Enrico Mattei (FEEM).
    13. Popp, David & Newell, Richard G. & Jaffe, Adam B., 2010. "Energy, the Environment, and Technological Change," Handbook of the Economics of Innovation, in: Bronwyn H. Hall & Nathan Rosenberg (ed.), Handbook of the Economics of Innovation, edition 1, volume 2, chapter 0, pages 873-937, Elsevier.
    14. Enrica Cian & Valentina Bosetti & Massimo Tavoni, 2012. "Technology innovation and diffusion in “less than ideal” climate policies: An assessment with the WITCH model," Climatic Change, Springer, vol. 114(1), pages 121-143, September.
    15. Wei Jin, 2012. "Can Technological Innovation Help China Take on Its Climate Responsibility? A Computable General Equilibrium Analysis," CAMA Working Papers 2012-51, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    16. Yazid Dissou & Lilia Karnizova & Qian Sun, 2015. "Industry-level Econometric Estimates of Energy-Capital-Labor Substitution with a Nested CES Production Function," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 43(1), pages 107-121, March.
    17. Ricci, Francesco, 2007. "Channels of transmission of environmental policy to economic growth: A survey of the theory," Ecological Economics, Elsevier, vol. 60(4), pages 688-699, February.
    18. He, Yongda & Lin, Boqiang, 2019. "Heterogeneity and asymmetric effects in energy resources allocation of the manufacturing sectors in China," Energy, Elsevier, vol. 170(C), pages 1019-1035.
    19. Gillingham, Kenneth & Newell, Richard G. & Pizer, William A., 2008. "Modeling endogenous technological change for climate policy analysis," Energy Economics, Elsevier, vol. 30(6), pages 2734-2753, November.
    20. Bretschger, Lucas & Lechthaler, Filippo & Rausch, Sebastian & Zhang, Lin, 2017. "Knowledge diffusion, endogenous growth, and the costs of global climate policy," European Economic Review, Elsevier, vol. 93(C), pages 47-72.

    More about this item

    Keywords

    Environmental Economics and Policy;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • Q25 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Water
    • Q28 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Government Policy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:feemdp:59376. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/feemmit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.