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Directed Technical Change and Climate Policy

This paper studies the cost effectiveness of climate policy if there are technology externalities. For this purpose, we develop a forward-looking CGE model that captures empirical links between CO2 emissions associated with energy use, directed technical change and the economy. We find the cost-effective climate policy to include a combination of R&D subsidies and CO2 emission constraints, although R&D subsidies raise the shadow value of the CO2 constraint (i.e. CO2 price) because of a strong rebound effect from stimulating innovation. Furthermore, we find that CO2 constraints differentiated toward CO2-intensive sectors are more cost effective than constraints that generate uniform CO2 prices among sectors. Differentiated CO2 prices, through technical change and concomitant technology externalities, encourage growth in the non-CO2 intensive sectors and discourage growth in CO2-intensive sectors. Thus, it is cost effective to let the latter bear relatively more of the abatement burden. This result is robust to whether emission constraints, R&D subsidies or combinations of both are used to reduce CO2 emissions. / Abstract in HTML and technical report in PDF available on the Massachusetts Institute of Technology Joint Program on the Science and Policy of Global Change website (http://mit.edu/globalchange/www/).

Identiferoai:union.ndltd.org:MIT/oai:dspace.mit.edu:1721.1/32541
Date04 1900
CreatorsOtto, Vincent M., Loeschel, Andreas, Reilly, John M.
PublisherMIT Joint Program on the Science and Policy of Global Change
Source SetsM.I.T. Theses and Dissertation
Languageen_US
Detected LanguageEnglish
TypeTechnical Report
Format530774 bytes, application/pdf
RelationReport no. 134

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