Uncertain R&D, Backstop Technology and GHGs Stabilization

Valentina Bosetti and Massimo Tavoni ()

No 2007.6, Working Papers from Fondazione Eni Enrico Mattei

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 modelled 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)
JEL-codes: O32 Q54 Q55 (search for similar items in EconPapers)
Date: 2007-01
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env and nep-ino
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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Related works:
Journal Article: Uncertain R&D, backstop technology and GHGs stabilization (2009)
Working Paper: Uncertain R&D, Backstop Technology and GHGs Stabilization (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:fem:femwpa:2007.6

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