Technological Change in Economic Models of Environmental Policy: A Survey

This paper provides an overview of the treatment of technological change in economic models of environmental policy. Numerous economic modeling studies have confirmed the sensitivity of mid- and long-run climate change mitigation cost and benefit projections to assumptions about technology costs. In general, technical progress is considered to be a noneconomic, exogenous variable in global climate change modeling. However, there is overwhelming evidence that technological change is not an exogenous variable but to an important degree endogenous, induced by needs and pressures. Hence, some environmenteconomy models treat technological change as endogenous, responding to socio-economic variables. Three main elements in models of technological innovation are: (i) corporate investment in research and development, (ii) spillovers from R&D, and (iii) technology learning, especially learning-by-doing. The incorporation of induced technological change in different types of environmental-economic models tends to reduce the costs of environmental policy, accelerates abatement and may lead to positive spillover and negative leakage

Carbon Dioxide Emissions in a Methane Economy

Increasing reliance on natural gas (methane) to meet global energy demands holds implications for atmospheric CO2 concentrations. Analysis of these implications is presented, based on a logistic substitution model viewing energy technologies like biological species invading an econiche and substituting in case of superiority for existing species. This model suggests gas will become the dominant energy source and remain so for 50 years, peaking near 70 percent of world supply. Two scenarios of energy demand are explored, one holding per capita consumption at current levels, the second raising the global average in the year 2100 to the current U.S. level. In the first ("efficiency") scenario concentrations peak about 450 ppm, while in the second ("long wave") they near 600 ppm. Although projected CO2 concentrations in a "methane economy" are low in relation to other scenarios, the projections confirm that global climate warming is likely to be a major planetary concern throughout the twenty-first century. A second finding is that data on past growth of world per capita energy consumption group neatly into two pulses consistent with long-wave theories in economics