Optimal climate policy under exogenous and endogenous technical change: Making sense of the different approaches

Léo Coppens, Simon Dietz and Frank Venmans

Journal of Environmental Economics and Management, 2025, vol. 133, issue C

Abstract: We analyse the large and diverse literature on technical change in integrated assessment models (IAMs) of climate change, with a view to understanding how different representations of technical change affect optimal climate policy. We first solve an analytical IAM that features several models of technical change from the literature, including exogenous technical change in abatement technologies, exogenous decarbonisation of the economy, endogenous technical change via learning-by-doing, and endogenous technical change via R&D (in particular, directed technical change). We show how these models of technical change impact optimal carbon prices, emissions and temperatures in often quite different ways. We then survey how technical change is currently represented in the main quantitative IAMs used to inform policy, demonstrating that a range of approaches are used. Exogenous technical change in abatement technologies and learning-by-doing are most popular, although the latter mechanism is only partially endogenous in some models. We go on to quantify technical change in these policy models using structural estimation, and simulate our analytical IAM numerically, assessing the effect of technical change on optimal climate policy. We find large quantitative effects of technical change and large quantitative differences between different representations of technical change, both under cost-benefit and cost-effectiveness objectives.

Keywords: Climate change; Cost-benefit analysis; Directed technical change; Induced innovation; Integrated assessment models; Learning-by-doing (search for similar items in EconPapers)
JEL-codes: C61 O30 Q54 Q55 Q58 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0095069625001007
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:133:y:2025:i:c:s0095069625001007

DOI: 10.1016/j.jeem.2025.103216

Access Statistics for this article

Journal of Environmental Economics and Management is currently edited by M.A. Cole, A. Lange, D.J. Phaneuf, D. Popp, M.J. Roberts, M.D. Smith, C. Timmins, Q. Weninger and A.J. Yates

More articles in Journal of Environmental Economics and Management from Elsevier
Bibliographic data for series maintained by Catherine Liu ().