Accounting for Uncertainty Affecting Technical Change in an Economic-Climate Model

Arbeitspapier

The key role of technological change in the decline of energy and carbon intensities of aggregate economic activities is widely recognized. This has focused attention on the issue of developing endogenous models for the evolution of technological change. With a few exceptions this is done using a deterministic framework, even though technological change is a dynamic process which is uncertain by nature. Indeed, the two main vectors through which technological change may be conceptualized, learning through R&D investments and learning-by-doing, both evolve and cumulate in a stochastic manner. How misleading are climate strategies designed without accounting for such uncertainty? The main idea underlying the present piece of research is to assess and discuss the effect of endogenizing this uncertainty on optimal R&D investment trajectories and carbon emission abatement strategies. In order to do so, we use an implicit stochastic programming version of the FEEM-RICE model, first described in Bosetti, Carraro and Galeotti, (2005). The comparative advantage of taking a stochastic programming approach is estimated using as benchmarks the expected-value approach and the worst-case scenario approach. It appears that, accounting for uncertainty and irreversibility would affect both the optimal level of investment in R&D –which should be higher– and emission reductions –which should be contained in the early periods. Indeed, waiting and investing in R&D appears to be the most cost-effective hedging strategy.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Nota di Lavoro ; No. 147.2005

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Externalities ; Equity, Justice, Inequality, and Other Normative Criteria and Measurement ; Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies ; Renewable Resources and Conservation: Other
• Thema: Stochastic Programming ; Uncertainty and Learning ; Endogenous Technical Change ; Umweltplanung ; Klimaschutz ; Endogener technischer Fortschritt ; Lernprozess ; Dynamische Optimierung ; Theorie

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Bosetti, Valentina ; Drouet, Laurent
• Ereignis: Veröffentlichung
• (wer): Fondazione Eni Enrico Mattei (FEEM)
• (wo): Milano
• (wann): 2005

Weitere Informationen

• Handle: http://hdl.handle.net/10419/74173
• Letzte Aktualisierung: 10.03.2025, 11:42 MEZ