ENTICE: Endogenous Technological Change in the DICE Model of Global Warming

David Popp

No 9762, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Despite growing empirical evidence of the link between environmental policy and innovation, most economic models of environmental policy treat technology as exogenous. For long-term problems such as climate change, this omission can be significant. In this paper, I modify the DICE model of climate change (Nordhaus 1994, Nordhaus and Boyer 2000) to allow for induced innovation in the energy sector. Ignoring induced technological change overstates the welfare costs of an optimal carbon tax policy by 8.3 percent. However, cost-savings, rather than increased environmental benefits, appear to drive the welfare gains, as the effect of induced innovation on emissions and mean global temperature is small. Sensitivity analysis shows that potential crowding out of other R&D and market failures in the R&D sector are the most important limiting factors to the potential of induced innovation. Differences in these key assumptions explain much of the variation in the findings of other similar models.

JEL-codes: O33 O41 (search for similar items in EconPapers)
Date: 2003-06
Note: PR EEE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Published as Popp, David. "Entice: Endogenous Technological Change In The DICE Model Of Global Warming," Journal of Environmental Economics and Management, 2004, v48(1,Jul), 742-768.

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