Human Capital, Innovation, and Climate Policy: an Integrated Assessment

Abstract

This paper looks at the interplay between human capital and innovation when climate and educational policies are implemented. Following recent empirical studies, human capital and general purpose research and development (R&D) are introduced in an integrated assessment model used to study the dynamics of climate change mitigation. Our results suggest that climate policy stimulates general purpose as well as clean R&D but reduces the incentive to invest in human capital formation. Both innovation and human capital have a scale effect, which increases pollution, as well as a technique effect, which saves emissions for each unit of output produced. While the energy-saving effect prevails when innovation increases, human capital is pollution-using, also because of the gross complementarity between the labor and energy input. When the role of human capital is the key input in the production of general purpose and energy knowledge is accounted for, the crowding-out of education induced by climate policy is mitigated, though not completely offset. By contrast, a policy mix that combines educational as well as climate objectives offsets the human capital crowding-out, at moderate and short-term costs. Over the long run, the policy mix leads to global welfare gains.

The cost of mitigation revisited

“…Statistically, identifying the determinants of TFP growth has been a challenge. However, certain factors of productivity enhancement such as education and Schumpeterian innovation have been included in IAMs and agent-based models 147,148 . In addition, TFP changes "feed forward to economic growth and on to the various subsystems that indirectly or directly drive those same variables affecting it" 146 .…”

Human Capital and Energy Efficiency: Evidence from Developing Countries

“…The second reason is that, although human capital can increase energy efficiency by stimulating energy-saving innovation, it is also possible that human capital will increase energy usage and reduce efficiency due to its role in promoting economic growth (Greening et al, 2000;Li & Lin, 2018). In addition, in the production process, human capital can substitute or complement other energy inputs economy (Carraro et al, 2014;Fan et al, 2007).…”