ENTICE: Endogenous Technological Change in the DICE Model of Global Warming / David Popp.

Format:

Book

Author/Creator:

Popp, David.

Contributor:

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w9762.

NBER working paper series no. w9762

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

ENTICE

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2003.

Summary:

Despite growing empirical evidence of the link between environmental policy and innovation, most economic models of environmental policy treat technology as exogenous. For long-term problems such as climate change, this omission can be significant. In this paper, I modify the DICE model of climate change (Nordhaus 1994, Nordhaus and Boyer 2000) to allow for induced innovation in the energy sector. Ignoring induced technological change overstates the welfare costs of an optimal carbon tax policy by 8.3 percent. However, cost-savings, rather than increased environmental benefits, appear to drive the welfare gains, as the effect of induced innovation on emissions and mean global temperature is small. Sensitivity analysis shows that potential crowding out of other R&D and market failures in the R&D sector are the most important limiting factors to the potential of induced innovation. Differences in these key assumptions explain much of the variation in the findings of other similar models.

Notes:

Print version record

June 2003.