Directed Technical Change With Capital-Embodied Technologies: Implications For Climate Policy

We develop a theoretical model of directed technical change in which clean (zero emissions) and dirty (emissions-intensive) technologies are embodied in long-lived capital. We show how obsolescence costs generated by technological embodiment create inertia in a transition to clean growth. Optimal policies involve higher and longer-lasting clean R&D subsidies than when technologies are disembodied. From a low level, emissions taxes are initially increased rapidly, so they are higher in the long run. There is more warming. Introducing spillovers from an exogenous technological frontier representing non-energy-intensive technologies reduces mitigation costs. Optimal taxes and subsidies are lower and there is less warming.


Issue Date:
Aug 27 2014
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/183143
Total Pages:
35
Series Statement:
CCSD
073.2014




 Record created 2017-04-01, last modified 2017-08-27

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