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

Supplier strategies and responses to institutional drivers for an emerging energy technology

This paper investigates the role of suppliers of a new energy technology, when the market for that technology continues to be in a state of flux, and is characterised by continued regulatory and institutional developments. This paper first summarises the institutional drivers resulting in the widely divergent diffusion of distributed generation (DG) based on natural gas engines in the Netherlands and the UK. Then, supplier responses to this institutionally driven market are discussed. Under regulatory support, supply firms were able to implement innovative operational and ownership arrangements, hugely growing the market while positioning themselves for new R&D and market developments. Under regulatory restrictions, supply firms fought to survive, with resultant implications for the reputation and longer term prospects for this new energy technology. The paper concludes by discussing how continuing institutional instability can limit the supplier strategies based on spillovers from successful regulatory experiments. Thus, the establishment of a viable energy supply industry is delayed under continuing regulatory uncertainty

Key uncertainties in climate change policy: Results from ICAM-2

A critical aspect of climate change decision-making is uncertainties in current understanding of the socioeconomic, climatic and biogeochemical processes involved. Decision-making processes are much better informed if these uncertainties are characterized and their implications understood. Quantitative analysis of these uncertainties serve to: inform decision makers about the likely outcome of policy initiatives; and help set priorities for research so that outcome ambiguities faced by the decision-makers are reduced. A family of integrated assessment models of climate change have been developed at Carnegie Mellon. These models are distinguished from other integrated assessment efforts in that they were designed from the outset to characterize and propagate parameter, model, value, and decision-rule uncertainties. The most recent of these models is ICAM 2.0. This model includes demographics, economic activities, emissions, atmospheric chemistry, climate change, sea level rise and other impact modules and the numerous associated feedbacks. The model has over 700 objects of which over 1/3 are uncertain. These have been grouped into seven different classes of uncertain items. The impact of uncertainties in each of these items can be considered individually or in combinations with the others. In this paper we demonstrate the relative contribution of various sources of uncertainty to different outcomes in the model. The analysis shows that climatic uncertainties are most important, followed by uncertainties in damage calculations, economic uncertainties and direct aerosol forcing uncertainties. Extreme uncertainties in indirect aerosol forcing and behavioral response to climate change (adaptation) were characterized by using bounding analyses; the results suggest that these extreme uncertainties can dominate the choice of policy outcomes