Modelling the redirection of technical change: The pitfalls of incorporeal visions of the economy

Pottier, Antonin; Hourcade, Jean Charles; Espagne, Étienne

doi:10.1016/j.eneco.2013.12.003

Cited by 41 publications

(18 citation statements)

References 27 publications

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“…(12) in Section 2.1.2 for a detailed explanation.) Examining the impact of learning-by-doing mechanisms in the structural change framework adopted by AABH has already been called for Pottier et al (2014).…”

Section: Two Conceptions Of Technological Progress: Learning-by-doingmentioning

confidence: 99%

“…We suggest that the investments in these infrastructures can be interpreted as an increase in the substitution possibilities. Thus a scenario of an increasing substitution elasticity is the most plausible scenario for the coming decades, particularly in the light of estimates that current substitution possibilities between clean and dirty sectors are very low (Pelli, 2011;Pottier et al, 2014).…”

Section: Introductionmentioning

confidence: 99%

“…It has been argued that AABH's policy implications are also not robust when a different climate module is used that represents the carbon cycle better(Pottier et al, 2014). Nevertheless, we adopt here AABH's representation of the climate module in order to show that when only the nature of the technical change is varied, the policy implications of their study do not hold.…”

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confidence: 99%

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Avoiding carbon lock-in: Policy options for advancing structural change

2015

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An obstacle for the transformation to a low-carbon economy is the carbon lock-in: fossil fuel-based ("dirty") technologies dominate the market although their carbon-free ("clean") alternatives are dynamically more efficient. We study the interaction of learning-by-doing spillovers with the substitution elasticity between a clean and a dirty sector to evaluate the robustness of policies averting the carbon lock-in. We find that the substitution possibilities between the two sectors have an ambivalent effect: although a high substitution elasticity requires less aggressive mitigation policies than a low one, it creates a greater welfare loss through the lock-in in the absence of regulation. The socially optimal policy response consists of a permanent carbon tax as well as a learning subsidy for clean technologies. We thus indicate that the policy implications of (Acemoglu, D., Aghion, P., Bursztyn, L., Hemous, D., 2012. The Environment and Directed Technical Change. American Economic Review 120 (1): 131-166), calling for merely temporary interventions based on the mechanism of directed technical change in the same setting, are limited in scope. Our results also highlight that infrastructure provision is crucial to facilitate the low-carbon transformation.

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Section: Two Conceptions Of Technological Progress: Learning-by-doingmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

mentioning

confidence: 99%

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Avoiding carbon lock-in: Policy options for advancing structural change

2015

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“…A wide variety of endogenous growth models have been developed, as reviewed by (Gillingham, Newell, & Pizer, 2008b) and (Koehler, Grubb, Popp, & Edenhofer, 2006), but parameters are often hard to estimate. The best-known theoretical advance since then (Acemoglu, Aghion, Bursztyn, & Hemous, 2012) underlined that innovation could radically reduce the cost of tackling climate change, but cast this in terms of specific subsidies to innovation, within a model that was criticized for its parameter assumptions and lack of path-dependence, being still rooted in an 'incorporeal' world of sequential general equilibria (Pottier, Hourcade, & Espagne, 2014).…”

Section: Complexitymentioning

confidence: 99%

Modeling Myths: On the Need for Dynamic Realism in DICE and other Equilibrium Models of Global Climate Mitigation

Grubb

Wieners

2020

INET Working Paper Series

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We analyze and critique how optimizing Integrated Assessment Models, and specifically the widely-used DICE model, represent abatement costs. Many such models assume temporal independence -abatement costs in one period are not affected by prior abatement. We contrast this with three dimensions of dynamic realism in emitting systems: inertia, induced innovation, and path dependence.We extend the DICE model with a stylized representation of such dynamic factors. By adding a transitional cost component, we characterize the resulting system in terms of its capacity to adapt in path-dependent ways, and the transitional costs of accelerating abatement. We formalize a resulting metric of the pliability of the system, and the characteristic timescales of adjustment.With the resulting DICE-PACE model, we show that in a system with high pliability, the optimal strategy involves much higher initial investment in abatement, sustained at roughly constant levels for some decades, which generates an approximately linear abatement path and emissions declining steadily to zero. This contrasts sharply with the traditional formulation. Characteristic transition timescales of 20-40 years result in an optimum path † Professor of Energy and Climate Change, University College London. m.grubb@ucl.ac.uk ‡ Postdoctoral researcher at which stabilizes global temperatures around a degree below the traditional DICE behavior; with otherwise modest assumptions, a pliable system can generate optimal scenarios within the goals of the Paris Agreement, with far lower long run combined costs of abatement and climate damages.We conclude that representing dynamic realism in such models is as important as -and far more empirically tractable than -continued debate about the monetization of climate damages and 'social cost of carbon'.https://doi.org/10.36687/inetwp106 JEL Codes: Q5, H23, Q54, Q55The aim of the DICE model, and many others following its general philosophy, is to calculate a longterm balance of costs and benefits. Figure 1 shows the results obtained from the most recent version of DICE (2016). With Nordhaus' standard default published assumptions, it produces an emissions path which (after a drop to a present 'optimal level') has modest initial emissions abatement, strengthening over time due to rising climate damages and assumed falling cost of emission abatement. Abatement tends to be deferred, global emissions in 2050 rise back to about present levels before declining at an accelerating rate towards zero early in the next century. The underlying assumptions mean that 'climate damages' -represented as impact on global GDP -remain below 4% of GDP to the end of the century (then doubling by about 2150). Global GDP is assumed to increase seven-fold over the century and climate in the standard DICE is assumed to be a modest issue, with both the global damages and abatement costs having negligible impact on the assumed continued growth in global GDP.

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“…The complexities of these different subsystems and the way they interact with each other make it difficult to rely on stylized economic models. In this context, oversimplification can lead to distorted policy implications and lack of numerical realism (see [22] and the critical response that followed, by Hourcade et al [44] and Pottier et al [45]). WITCH has a sophisticated characterization of endogenous technical change, but confined to the energy sector.…”

Section: Introductionmentioning

confidence: 99%

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

Carraro

Cian

Tavoni

2013

Environ Model Assess

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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.

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Modelling the redirection of technical change: The pitfalls of incorporeal visions of the economy

Cited by 41 publications

References 27 publications

Avoiding carbon lock-in: Policy options for advancing structural change

Avoiding carbon lock-in: Policy options for advancing structural change

Modeling Myths: On the Need for Dynamic Realism in DICE and other Equilibrium Models of Global Climate Mitigation

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

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