Directed technical change with capital-embodied technologies: Implications for climate policy

James Lennox and Jan Witajewski-Baltvilks

Energy Economics, 2017, vol. 67, issue C, 400-409

Abstract: We develop a theoretical model of directed technical change in which clean (zero-emissions) and dirty (emissions-intensive) technologies are embodied in long-lived capital stocks. Switching from dirty to clean innovation leads to ongoing reductions in the relative costs of producing clean investment goods, making them ever cheaper to purchase and so encouraging clean investment. At the same time, falling replacement costs imply falling asset values. Consequently, continuing innovation in capital-embodied clean technologies also generates obsolescence costs, which are borne by users of clean capital. The negative effect of obsolescence costs on demand for clean investment and consequently on the speed of transition to clean growth has been neglected in the literature on directed technical change.

Keywords: Climate mitigation; Directed technical change; Capital embodiment; Obsolescence; Carbon tax; R&D subsidies (search for similar items in EconPapers)
JEL-codes: O33 O44 Q54 Q55 Q58 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Directed Technical Change With Capital-Embodied Technologies: Implications For Climate Policy (2014)
Working Paper: Directed Technical Change With Capital-Embodied Technologies: Implications For Climate Policy (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:67:y:2017:i:c:p:400-409

DOI: 10.1016/j.eneco.2017.08.005

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