Working Paper: NBER ID: w10285
Authors: David Popp
Abstract: Recent attempts to endogenize technology in climate policy models have produced mixed results. Models including alternative technologies find large gains from induced technological change. However, technological progress in these models comes through learning-by-doing, which ignores the potential opportunity costs of technological change. Models using R&D spending as the driver of technological change address this. However, these models typically include only a single representative energy technology, substitution across technologies is not possible. This paper addresses these shortcomings by including policy-induced energy R&D in a model with a backstop energy technology. I show that, while induced technological change is important, larger welfare gains come from simply adding an alternative technology to the model. As in models with a single technology, opportunity costs of research limit the role induced innovation can play. Moreover, since the backstop technology improves welfare even without climate policy, accurate policy analysis depends on a carefully constructed baseline simulation.
Keywords: No keywords provided
JEL Codes: O33; O41; Q42; Q43; Q55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Backstop technology (O33) | Lower costs of carbon emissions reduction (Q52) |
| Induced technological change (ITC) (O33) | Welfare gains (D69) |
| Opportunity costs of R&D (O39) | Limit potential contributions of ITC (F38) |
| Backstop technology (O33) | Welfare gains (D69) |
| Crowding out of other forms of R&D (O36) | Constrain expected improvements in welfare from R&D investment (O39) |