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The Transition to Endogenous Technical Change in Climate-Economy Models: A Technical Overview to the Innovation Modeling Comparison Project

Abstract:
This paper assesses endogenous technical change (ETC) in climate-economy models, using the models in the Innovation Modeling Comparison Project (IMCP) as a representative cross-section. ETC is now a feature of most leading models. Following the new endogenous growth literature and the application of learning curves to the energy sector, there are two main concepts employed: knowledge capital and learning curves. The common insight is that technical change is driven by the development of knowledge capital and its characteristics of being partly non-rival and partly non-excludable. There are various different implementations of ETC. Recursive CGE models face particular difficulties in incorporating ETC and increasing returns. The main limitations of current models are: the lack of uncertainty analysis; the limited representation of the diffusion of technology; and the homogeneous nature of agents in the models including the lack of representation of institutional structures in the innovation process.

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Energy Specializations: Energy Modeling – Other; Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Environmental Market Design

JEL Codes:
C59 - Econometric Modeling: Other
Q54 - Climate; Natural Disasters and Their Management; Global Warming
Q56 - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

Keywords: Endogenous technological change, Climate-economy models, Model comparison, IMCP

DOI: 10.5547/ISSN0195-6574-EJ-VolSI2006-NoSI1-2


Published in Endogenous Technological Change, Special Issue #1 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.