Modeling Biased Technical Change. Implications for Climate Policy

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.


Issue Date:
2010-01
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/59376
Total Pages:
26
JEL Codes:
C72; H23; Q25; Q28
Series Statement:
SD
3.2010




 Record created 2017-04-01, last modified 2017-08-22

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