Final Technical Report: "Representing Endogenous Technological Change in Climate Policy Models: General Equilibrium Approaches"

Abstract

The research supported by this award pursued three lines of inquiry: (1) The construction of dynamic general equilibrium models to simulate the accumulation and substitution of knowledge, which has resulted in the preparation and submission of several papers: (a) A submitted pedagogic paper which clarifies the structure and operation of computable general equilibrium (CGE) models (C.2), and a review article in press which develops a taxonomy for understanding the representation of technical change in economic and engineering models for climate policy analysis (B.3). (b) A paper which models knowledge directly as a homogeneous factor, and demonstrates that inter-sectoral reallocation of knowledge is the key margin of adjustment which enables induced technical change to lower the costs of climate policy (C.1). (c) An empirical paper which estimates the contribution of embodied knowledge to aggregate energy intensity in the U.S. (C.3), followed by a companion article which embeds these results within a CGE model to understand the degree to which autonomous energy efficiency improvement (AEEI) is attributable to technical change as opposed to sub-sectoral shifts in industrial composition (C.4) (d) Finally, ongoing theoretical work to characterize the precursors and implications of the response of innovation to emission limits (E.2). (2) Data development and simulation modeling to understand how the characteristics of discrete energy supply technologies determine their succession in response to emission limits when they are embedded within a general equilibrium framework. This work has produced two peer-reviewed articles which are currently in press (B.1 and B.2). (3) Empirical investigation of trade as an avenue for the transmission of technological change to developing countries, and its implications for leakage, which has resulted in an econometric study which is being revised for submission to a journal (E.1). As work commenced on this topic, the U.S. withdrawal from Kyoto and the administration's announcement of a voluntary target based on emission intensity made it apparent that the degree of emission leakage to developing countries would depend on (i) the form of the emission limit set by developed countries and (ii) the incentives faced by developing nations to accede to an international climate regime. This realization led to synergistic research on the properties of intensity targets under uncertainty, which resulted in two theoretical studies, one which has been published (A.1) and the other which is currently in review (C.5).