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Innovation and Climate Change Policy

Joshua Gans University of Melbourne April, 2010

Monday, 19 April 2010

Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Policy Issue

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Policy Issue

View #1: If we ‘get the prices right,’ innovation will take care of itself.

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Policy Issue

View #1: If we ‘get the prices right,’ innovation will take care of itself. View #2: Innovation involves market failures that need to be dealt with independently of climate change policy

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Policy Issue

View #1: If we ‘get the prices right,’ innovation will take care of itself. View #2: Innovation involves market failures that need to be dealt with independently of climate change policy View #3: ‘Getting the prices right’ might make innovation policy more difficult

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Research Question

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Research Question

Does the imposition of ‘more stringent’ climate change policy in the form of a tighter emissions cap or a higher carbon tax, increase the equilibrium level of innovation?

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Research Question

Does the imposition of ‘more stringent’ climate change policy in the form of a tighter emissions cap or a higher carbon tax, increase the equilibrium level of innovation? Can the increased innovation lead to higher productivity and growth?

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Literature

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Literature
Hicks, Theory of Wages, 1932

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Literature
Hicks, Theory of Wages, 1932

“A change in the relative prices of the factors of production is itself a spur to invention, and to invention of a particular kind -- directed to economizing the use of a factor which has become relatively expensive.”
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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Literature
Hicks, Theory of Wages, 1932

Emissions cap

“A change in the relative prices of the factors of production is itself a spur to invention, and to invention of a particular kind -- directed to economizing the use of a factor which has become relatively expensive.”
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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Literature
Hicks, Theory of Wages, 1932

Emissions cap

Increase relative price of fossil fuels

“A change in the relative prices of the factors of production is itself a spur to invention, and to invention of a particular kind -- directed to economizing the use of a factor which has become relatively expensive.”
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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Literature
Hicks, Theory of Wages, 1932 Innovation to save on ‘expensive’ resource

Emissions cap

Increase relative price of fossil fuels

“A change in the relative prices of the factors of production is itself a spur to invention, and to invention of a particular kind -- directed to economizing the use of a factor which has become relatively expensive.”
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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Emissions cap

Increase relative price of fossil fuels

Innovation to save on ‘expensive’ resource

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Empirical Analysis

Emissions cap

Increase relative price of fossil fuels

Innovation to save on ‘expensive’ resource

Newell, Jaffe & Stavins, QJE, 1999: efficiency of air cond. Popp, AER, 2002: patent application growth
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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Emissions cap

Increase relative price of fossil fuels

Innovation to save on ‘expensive’ resource

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Strong Form

Emissions cap

Increase relative price of fossil fuels

Innovation to save on ‘expensive’ resource

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Strong Form
Innovation to save on ‘expensive’ resource Emissions cap Increase relative price of fossil fuels

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Strong Form
Innovation to save on ‘expensive’ resource Emissions cap Increase relative price of fossil fuels

+

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Strong Form
Innovation to save on ‘expensive’ resource Emissions cap Increase relative price of fossil fuels

+
Productivity of the firm increases

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Strong Form
Innovation to save on ‘expensive’ resource Emissions cap Increase relative price of fossil fuels

+
Productivity of the firm increases

Porter and van der Linde, JEP, 1995: Porter Hypothesis
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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

General Equilibrium/Endogenous Growth Theory

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

General Equilibrium/Endogenous Growth Theory

Emissions cap

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

General Equilibrium/Endogenous Growth Theory

Emissions cap

Higher cost of energy/ resources

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

General Equilibrium/Endogenous Growth Theory
Higher R&D Costs Emissions cap Higher cost of energy/ resources

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

General Equilibrium/Endogenous Growth Theory
Higher R&D Costs Emissions cap Higher cost of energy/ resources Reduced demand

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Introduction Baseline Model Extensions Conclusion

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General Equilibrium/Endogenous Growth Theory
Higher R&D Costs Emissions cap Higher cost of energy/ resources Reduced demand Less growth/ innovation

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

General Equilibrium/Endogenous Growth Theory
Higher R&D Costs Emissions cap Higher cost of energy/ resources Reduced demand
Hints in Smulders & de Nooji (2003) and Sue Wing (2003)
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Less growth/ innovation

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Ambiguity

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Ambiguity

Emissions cap

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Ambiguity
Increase relative price of fossil fuels Emissions cap

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Ambiguity
Increase relative price of fossil fuels Emissions cap Higher costs of energy/ resources

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Ambiguity
Increase relative price of fossil fuels Emissions cap Higher costs of energy/ resources

Innovation to save on ‘expensive’ resource

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Policy Issue Research Question Literature Outline

Ambiguity
Increase relative price of fossil fuels Emissions cap Higher costs of energy/ resources

?

Innovation to save on ‘expensive’ resource

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Directed Technical Change

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Directed Technical Change
Climate Change Models Nordhaus: R&D resources to changing a technical parameter

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Introduction Baseline Model Extensions Conclusion

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Directed Technical Change
Climate Change Models Nordhaus: R&D resources to changing a technical parameter Endogenous Growth Theory Acemoglu, RES, 2002: relative bias towards factors driven by a ‘price effect’ and a ‘market size’ effect Acemoglu, Econometrica, 2007: absolute bias towards factors based on local elasticity of substitution Acemoglu, 2009: labor scarcity only drives innovation, if technological change is ‘labor saving’ (that is, if aggregate production has decreasing differences in labour and technology) Acemoglu, Aghion, Bursztyn, Hermous, (2010): dynamics with exhaustible environmental resource
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Introduction Baseline Model Extensions Conclusion

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Outline

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Outline

Introduce baseline model with results on fossil fuel and alternative energy augmenting technologies based on an emissions cap

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Outline

Introduce baseline model with results on fossil fuel and alternative energy augmenting technologies based on an emissions cap Consider extensions such as elastic energy supply, a carbon tax and innovation in offset technologies

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Introduction Baseline Model Extensions Conclusion

Policy Issue Research Question Literature Outline

Outline

Introduce baseline model with results on fossil fuel and alternative energy augmenting technologies based on an emissions cap Consider extensions such as elastic energy supply, a carbon tax and innovation in offset technologies

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Introduction Baseline Model Extensions Conclusion

Technology & Production Equilibrium Impact on Innovation Impact on Output

Elements
Energy Fossil (F): which results in emissions, E (also loss of consumption units) Total Supply is F Alternative (Z): no emissions Total capacity is Z Sectors Competitive final good sector, producing Y, using energy and capital Monopolist supplier of capital, q (embodied technology) R&D sector: operated by monopolist using final good

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Technology & Production Equilibrium Impact on Innovation Impact on Output

Production Function

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Technology & Production Equilibrium Impact on Innovation Impact on Output

Production Function

yi = α (1 − α )

−α

−1

((θ F )
1 i

σ −1 σ

+ (θ 2 Z i )

σ −1 σ

)

α σ −1

γσ

qi (θ1 ,θ 2 )

1− α

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Technology & Production Equilibrium Impact on Innovation Impact on Output

Production Function

yi = α (1 − α )

−α

−1

((θ F )
1 i

σ −1 σ

+ (θ 2 Z i )

σ −1 σ

)

α σ −1

γσ

qi (θ1 ,θ 2 )

1− α

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Technology & Production Equilibrium Impact on Innovation Impact on Output

Production Function
Elasticity of Substitution between Energy Sources

yi = α (1 − α )

−α

−1

((θ F )
1 i

σ −1 σ

+ (θ 2 Z i )

σ −1 σ

)

α σ −1

γσ

qi (θ1 ,θ 2 )

1− α

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Introduction Baseline Model Extensions Conclusion

Technology & Production Equilibrium Impact on Innovation Impact on Output

Production Function
Elasticity of Substitution between Energy Sources

yi = α (1 − α )

−α

−1

((θ F )
1 i

σ −1 σ

+ (θ 2 Z i )

σ −1 σ

)

α σ −1

γσ

qi (θ1 ,θ 2 )

1− α

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Introduction Baseline Model Extensions Conclusion

Technology & Production Equilibrium Impact on Innovation Impact on Output

Production Function
Elasticity of Substitution between Energy Sources Energy Returns to Scale

yi = α (1 − α )

−α

−1

((θ F )
1 i

σ −1 σ

+ (θ 2 Z i )

σ −1 σ

)

α σ −1

γσ

qi (θ1 ,θ 2 )

1− α

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Introduction Baseline Model Extensions Conclusion

Technology & Production Equilibrium Impact on Innovation Impact on Output

Production Function
Elasticity of Substitution between Energy Sources Energy Returns to Scale

yi = α (1 − α )
Normalisation

−α

−1

((θ F )
1 i

σ −1 σ

+ (θ 2 Z i )

σ −1 σ

)

α σ −1

γσ

qi (θ1 ,θ 2 )

1− α

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Introduction Baseline Model Extensions Conclusion

Technology & Production Equilibrium Impact on Innovation Impact on Output

Production Function
Elasticity of Substitution between Energy Sources Energy Returns to Scale

yi = α (1 − α )
Normalisation

−α

−1

((θ F )
1 i

σ −1 σ

+ (θ 2 Z i )

σ −1 σ

)

α σ −1

γσ

qi (θ1 ,θ 2 )

1− α

Fossil Fuel Augmenting Technology
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Introduction Baseline Model Extensions Conclusion

Technology & Production Equilibrium Impact on Innovation Impact on Output

Production Function
Elasticity of Substitution between Energy Sources Energy Returns to Scale

yi = α (1 − α )
Normalisation

−α

−1

((θ F )
1 i

σ −1 σ

+ (θ 2 Z i )

σ −1 σ

)

α σ −1

γσ

qi (θ1 ,θ 2 )

1− α

Fossil Fuel Augmenting Technology
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Introduction Baseline Model Extensions Conclusion

Technology & Production Equilibrium Impact on Innovation Impact on Output

Production Function
Elasticity of Substitution between Energy Sources Energy Returns to Scale

yi = α (1 − α )
Normalisation

−α

−1

((θ F )
1 i

σ −1 σ

+ (θ 2 Z i )

σ −1 σ

)

α σ −1

γσ

qi (θ1 ,θ 2 )

1− α

Fossil Fuel Augmenting Technology
Innovation and Climate Change Policy
Monday, 19 April 2010

Alternative Energy Augmenting Technology
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Introduction Baseline Model Extensions Conclusion

Technology & Production Equilibrium Impact on Innovation Impact on Output

Production Function
Elasticity of Substitution between Energy Sources Energy Returns to Scale

yi = α (1 − α )
Normalisation

−α

−1

((θ F )
1 i

σ −1 σ

+ (θ 2 Z i )

σ −1 σ

)

α σ −1

γσ

qi (θ1 ,θ 2 )

1− α

Fossil Fuel Augmenting Technology
Innovation and Climate Change Policy
Monday, 19 April 2010

Alternative Energy Augmenting Technology
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Introduction Baseline Model Extensions Conclusion

Technology & Production Equilibrium Impact on Innovation Impact on Output

Technological Choice
The monopolist chooses θs at cost C(θs) Upon creation of θs, monopolist can produce an intermediate capital good embodying θs at a constant per unit cost of 1 - α. Monopolist sets a linear price, χ, for capital good of type θs Factor markets are competitive and each firm takes technology and price of intermediate goods as given.

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Technology & Production Equilibrium Impact on Innovation Impact on Output

Factor demands
Final good producers choose energy sources

max F i ,Z i ,qi π (Fi , Z i ,qi ,θ ) = yi (Fi , Z i ,qi ,θ ) − pF Fi − pZ Z i − χ qi (θ )
s

Inverse demand for each intermediate capital good
qi ( χ , Fi , Z i ,θ1 ,θ 2 ) = α
−1

(

(θ1 Fi )

σ −1 σ

+ (θ 2 Z i )

σ −1 σ

)

γσ σ −1

χ −1/ α

Isoelastic so χ = 1

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Introduction Baseline Model Extensions Conclusion

Technology & Production Equilibrium Impact on Innovation Impact on Output

Equilibrium Technology

Proposition (Acemoglu, 2007) Any equilibrium technology is a that is the solution to:
maxθ ,θ (θ1 F )
1 2

* * (θ1 ,θ 2 ) vector

(

σ −1 σ

+ (θ 2 Z )

σ −1 σ

)

γσ σ −1

− C(θ1 ) − C(θ 2 )

and any such vector gives an equilibrium technology.

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Technology & Production Equilibrium Impact on Innovation Impact on Output

Generalisations

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Introduction Baseline Model Extensions Conclusion

Technology & Production Equilibrium Impact on Innovation Impact on Output

Generalisations
Same result for any general functional form for final good production

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Technology & Production Equilibrium Impact on Innovation Impact on Output

Generalisations
Same result for any general functional form for final good production Can be put in a fully specified balanced growth model

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Technology & Production Equilibrium Impact on Innovation Impact on Output

Generalisations
Same result for any general functional form for final good production Can be put in a fully specified balanced growth model Alternative assumptions Decentralised: technologies chosen by final good firms (with externalities) Centralised: technology chosen by centralised agency Oligopoly: technology decided by a set of potentially competing oligopolists (e.g., product variety models)

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Introduction Baseline Model Extensions Conclusion

Technology & Production Equilibrium Impact on Innovation Impact on Output

Cap and trade policy

A cap on emissions is put in place Tight relationship between emissions and fossil fuel use Equivalent to a reduction in F

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Introduction Baseline Model Extensions Conclusion

Technology & Production Equilibrium Impact on Innovation Impact on Output

Fossil Fuel Augmenting Technological Change
Fix the alternative energy technology (θ2) First-order condition for θ1:
γ F(θ F )
* 1
σ −1 −1 σ

(

(θ F )
* 1

σ −1 σ

+ (θ 2 Z )

σ −1 σ

)

γσ −1 σ −1

* = C ′(θ1 )

θ1 is decreasing in F if and only if
σ −1 σ

(θ 2 Z )

σ −1 σ

+ γ (θ1 F )

σ −1 σ

<0

which cannot hold if F and Z are substitutes (σ > 1) θ1 is non-decreasing in F
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Introduction Baseline Model Extensions Conclusion

Technology & Production Equilibrium Impact on Innovation Impact on Output

Alternative Energy Augmenting Technological Change
Fix the fossil fuel technology (θ1) First-order condition for θ2:
γ Z (θ Z )
* 2
σ −1 −1 σ

(

(θ1 F )

σ −1 σ

+ (θ Z )
* 2

σ −1 σ

)

γσ −1 σ −1

* = C ′(θ 2 )

θ2 is decreasing in F if and only if

γ <

σ −1 σ

which holds if F and Z are gross substitutes θ2 is maybe decreasing in F
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Introduction Baseline Model Extensions Conclusion

Technology & Production Equilibrium Impact on Innovation Impact on Output

Full Comparative Static
If:
γ ≤ (>) σσ−1
* Then θ1* is non-decreasing and θ 2 is nonincreasing (increasing) in F.

Climate change policy will induce innovations on goods that are not energy intensive but alternative energy can be easily substituted in.
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Introduction Baseline Model Extensions Conclusion

Technology & Production Equilibrium Impact on Innovation Impact on Output

Relationship to Climate Models
Climate change models such as ENTICE -- Popp (2004); Goulder and Schneider (1999) predict climate policy will increase induced innovation.
yi = L
2

1− α − γα i

q

1− α i

θ +F ) (
σ −1 σ σ −1 σ

γ

σ α σ −1

i

G(θ , Fi )

∂G = γ (γ ∂θ∂Fi

σ σ −1

− 1) σσ−1 θ

(

σ −1 −1 σ

+ Fi

σ −1 −1 σ

)

γ

σ −1 σ −1

↓ F ⇒↑ θ if γ <

σ −1 σ

Popp assumes σ = 1.6 So requires energy share (γ) < 0.38
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Introduction Baseline Model Extensions Conclusion

Technology & Production Equilibrium Impact on Innovation Impact on Output

What happens to output?

Suppose that θ1 is fixed, then Y is decreasing in F. F

Suggests that socially optimal emissions caps need to be weaker.
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Introduction Baseline Model Extensions Conclusion

Elastic supply Carbon tax Offset technologies

Elastic alternative energy supply

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Introduction Baseline Model Extensions Conclusion

Elastic supply Carbon tax Offset technologies

Elastic alternative energy supply
Suppose that the supply of alternative energy is upward sloping

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Introduction Baseline Model Extensions Conclusion

Elastic supply Carbon tax Offset technologies

Elastic alternative energy supply
Suppose that the supply of alternative energy is upward sloping Then as the emissions cap becomes tighter, more alternative energy is actually used. Increases the market size effect for innovation on alternative energy Reduces incentive to invest on fossil fuel augmenting energy

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Introduction Baseline Model Extensions Conclusion

Elastic supply Carbon tax Offset technologies

Elastic alternative energy supply
Suppose that the supply of alternative energy is upward sloping Then as the emissions cap becomes tighter, more alternative energy is actually used. Increases the market size effect for innovation on alternative energy Reduces incentive to invest on fossil fuel augmenting energy If F and Z are perfect substitutes At a critical point, all innovation switches from fossil fuel to alternative energy as usage switches.

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Introduction Baseline Model Extensions Conclusion

Elastic supply Carbon tax Offset technologies

Carbon Tax
Suppose that emissions are taxed at a rate, τ. Also, suppose that both alternative energy and fossil fuel supply is upward sloping. Finally, F and Z are perfect substitutes: σ → ∞

• θ1 is non-increasing in τ. • For τ sufficiently high, θ2 is non-

decreasing in τ. • For γ sufficiently high and τ sufficiently low, θ2 is non-increasing in τ.

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Introduction Baseline Model Extensions Conclusion

Elastic supply Carbon tax Offset technologies

Innovation in Offset Technologies

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Introduction Baseline Model Extensions Conclusion

Elastic supply Carbon tax Offset technologies

Innovation in Offset Technologies
Technologies to remove greenhouse gases from the atmosphere Carbon capture and storage Reforestation Sea bearing carbon capture

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Introduction Baseline Model Extensions Conclusion

Elastic supply Carbon tax Offset technologies

Innovation in Offset Technologies
Technologies to remove greenhouse gases from the atmosphere Carbon capture and storage Reforestation Sea bearing carbon capture Incentives to innovate If internalised within the firm, standard policies provide incentives If external to the firm (or country), need ability to earn permits by removing emissions from the atmosphere

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Introduction Baseline Model Extensions Conclusion

Elastic supply Carbon tax Offset technologies

Innovation in Offset Technologies
Let τ be the traded price of carbon Competitive offset activities, f, with supply cost, 1 θ3−1 f 2 2

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Introduction Baseline Model Extensions Conclusion

Elastic supply Carbon tax Offset technologies

Innovation in Offset Technologies
Let τ be the traded price of carbon Competitive offset activities, f, with supply cost, 1 θ3−1 f 2 2

Permit demand

σ −1 σ −1 −1 ∂yi α −1 σ σ = α (1 − α ) γθ1 (θ1 Fi ) (θ1 Fi ) + (θ 2 Z ) σ ∂Fi

(

)

γσ −1 σ −1

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Introduction Baseline Model Extensions Conclusion

Elastic supply Carbon tax Offset technologies

Innovation in Offset Technologies
Let τ be the traded price of carbon Competitive offset activities, f, with supply cost, 1 θ3−1 f 2 2

Permit demand Permit supply

σ −1 σ −1 −1 ∂yi α −1 σ σ = α (1 − α ) γθ1 (θ1 Fi ) (θ1 Fi ) + (θ 2 Z ) σ ∂Fi

(

)

γσ −1 σ −1

−1 θ3 f

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Introduction Baseline Model Extensions Conclusion

Elastic supply Carbon tax Offset technologies

Innovation in Offset Technologies
Let τ be the traded price of carbon Competitive offset activities, f, with supply cost, 1 θ3−1 f 2 2
σ −1 σ −1 −1 ∂yi α −1 σ σ = α (1 − α ) γθ1 (θ1 Fi ) (θ1 Fi ) + (θ 2 Z ) σ ∂Fi

(

)

γσ −1 σ −1

−1 θ3 f

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Introduction Baseline Model Extensions Conclusion

Elastic supply Carbon tax Offset technologies

Innovation in Offset Technologies
Let τ be the traded price of carbon Competitive offset activities, f, with supply cost, 1 θ3−1 f 2 2

σ −1 σ −1 −1 ∂yi α −1 σ σ = α (1 − α ) γθ1 (θ1 Fi ) (θ1 Fi ) + (θ 2 Z ) σ ∂Fi

(

)

γσ −1 σ −1

−1 = τ = θ3 f

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Introduction Baseline Model Extensions Conclusion

Elastic supply Carbon tax Offset technologies

Innovation in Offset Technologies
Let τ be the traded price of carbon Competitive offset activities, f, with supply cost, 1 θ3−1 f 2 2

σ −1 σ −1 −1 ∂yi α −1 σ σ = α (1 − α ) γθ1 (θ1 Fi ) (θ1 Fi ) + (θ 2 Z ) σ ∂Fi

(

)

γσ −1 σ −1

−1 = τ = θ3 f

yields equilibrium fossil fuel consumption
ˆ ˆ F(θ1 ,θ 2 ,θ 3 , F ) = F + f (θ1 ,θ 2 ,θ 3 , F )

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Introduction Baseline Model Extensions Conclusion

Elastic supply Carbon tax Offset technologies

Full Comparative Static
• θ1 is non-increasing in F. • θ2 is non-decreasing (increasing) in F
γ ≤ (>) σσ−1

• θ3 is non-decreasing in F.
Thus, innovation in offset technologies is unambiguously stimulated by a tighter emissions cap but never generates more fossil fuel use.
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Introduction Baseline Model Extensions Conclusion

Summary
θ1 Down Prius

θ2

?

Solar efficiency

θ3

Up

CCS

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Introduction Baseline Model Extensions Conclusion

Conclusions

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Introduction Baseline Model Extensions Conclusion

Conclusions
The presumption that climate change policy will induce innovation broadly is not true

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Introduction Baseline Model Extensions Conclusion

Conclusions
The presumption that climate change policy will induce innovation broadly is not true The theory that even when innovation is induced that productivity (output) might rise is not true

Innovation and Climate Change Policy
Monday, 19 April 2010

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Introduction Baseline Model Extensions Conclusion

Conclusions
The presumption that climate change policy will induce innovation broadly is not true The theory that even when innovation is induced that productivity (output) might rise is not true If climate change policy includes a reward for offsetting, then innovation in offset technologies will be stimulated

Innovation and Climate Change Policy
Monday, 19 April 2010

27/27

Introduction Baseline Model Extensions Conclusion

Conclusions
The presumption that climate change policy will induce innovation broadly is not true The theory that even when innovation is induced that productivity (output) might rise is not true If climate change policy includes a reward for offsetting, then innovation in offset technologies will be stimulated Climate change policy and innovation policy are complements and not substitutes (that is, ‘getting the prices right’ is not enough)

Innovation and Climate Change Policy
Monday, 19 April 2010

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