Uncertain R&D, backstop technology and GHGs stabilization

Valentina Bosetti () and Massimo Tavoni

Energy Economics, 2009, vol. 31, issue Supplement 1, pages S18-S26

Abstract: This paper analyses optimal investments in innovation when dealing with a stringent climate target and with the uncertain effectiveness of R&D. The innovation needed to achieve the deep cut in emissions is modeled by a backstop carbon-free technology whose cost depends on R&D investments. To better represent the process of technological progress, we assume that R&D effectiveness is uncertain. By means of a simple analytical model, we show how accounting for the uncertainty that characterizes technological advancement yields higher investments in innovation and lower policy costs. We then confirm the results via a numerical analysis performed with a stochastic version of WITCH, an energy-economy-climate model. The results stress the importance of a correct specification of the technological change process in economy-climate models.

Keywords: Climate; change; Information; and; uncertainty; Environmental; policy; Optimal; R&; D; investments (search for similar items in EconPapers)
Date: 2009

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Working Paper: Uncertain R&D, Backstop Technology and GHGs Stabilization (2007)
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Persistent link: http://EconPapers.repec.org/RePEc:eee:eneeco:v:31:y:2009:i:supplement1:p:s18-s26

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