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I NDUCED T ECHNICAL C HANGE IN E NERGY AND E NVIRONMENTAL M ODELING : Analytic Approaches and Policy Implications

I NDUCED T ECHNICAL C HANGE IN E NERGY AND E NVIRONMENTAL M ODELING : Analytic Approaches and... ▪ Abstract Technical change in the energy sector is central for addressing long-term environmental issues, including climate change. Most models of energy, economy, and the environment (E3 models) use exogenous assumptions for this. This is an important weakness. We show that there is strong evidence that technical change in the energy sector is to an important degree induced by market circumstances and expectations and, by implication, by environmental policies such as CO 2 abatement. We classify the main approaches to modeling such induced technical change and review results with particular reference to climate change. Among models with learning by doing, weak responses are only obtained from models that are highly aggregated (lack technological diversity) and/or that equate rates of return to innovation across sectors. Induced technical change broadens the scope of efficient policies toward mitigation, including not just research and development and aggregated market instruments but a range of sectoral-based policies potentially at divergent marginal costs. Furthermore, to the extent that cleaner technologies induced by mitigation diffuse globally, a positive spillover will result that will tend to offset the substitution-based negative spillover usually hypothesized to result from the migration of polluting industries. Initial explorations suggest that this effect could also be very large. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Annual Review of Environment and Resources Annual Reviews

I NDUCED T ECHNICAL C HANGE IN E NERGY AND E NVIRONMENTAL M ODELING : Analytic Approaches and Policy Implications

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Publisher
Annual Reviews
Copyright
Copyright © 2002 by Annual Reviews. All rights reserved
Subject
Review Articles
ISSN
1543-5938
DOI
10.1146/annurev.energy.27.122001.083408
Publisher site
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Abstract

▪ Abstract Technical change in the energy sector is central for addressing long-term environmental issues, including climate change. Most models of energy, economy, and the environment (E3 models) use exogenous assumptions for this. This is an important weakness. We show that there is strong evidence that technical change in the energy sector is to an important degree induced by market circumstances and expectations and, by implication, by environmental policies such as CO 2 abatement. We classify the main approaches to modeling such induced technical change and review results with particular reference to climate change. Among models with learning by doing, weak responses are only obtained from models that are highly aggregated (lack technological diversity) and/or that equate rates of return to innovation across sectors. Induced technical change broadens the scope of efficient policies toward mitigation, including not just research and development and aggregated market instruments but a range of sectoral-based policies potentially at divergent marginal costs. Furthermore, to the extent that cleaner technologies induced by mitigation diffuse globally, a positive spillover will result that will tend to offset the substitution-based negative spillover usually hypothesized to result from the migration of polluting industries. Initial explorations suggest that this effect could also be very large.

Journal

Annual Review of Environment and Resources – Annual Reviews

Published: Nov 1, 2002

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