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Importance of Technological Change and Spillovers in Long-Term Climate Policy

Abstract:
This paper examines the role of technological change and spillovers within the context of a climate policy in a long-term scenario of the global energy system. We use the energy-systems optimization model MESSAGE considering endogenous learning for various technologies, such that they experience cost reductions as a function of accumulated capacity installations. We find that the existence of technological learning while reducing overall energy system costs becomes particularly important in the context of a long-term climate policy. Diversity in technological portfolios is emphasized and results indicate deployment of a range of energy technologies in reducing emissions. An important finding is that technological learning by itself is not sufficient for climate stabilization and that climate policies are an absolute necessary complimentary element. Under a climate constraint, spillovers across technologies and regions due to learning results in increased upfront investments and hence lower costs of carbon free technologies, thus resulting in technology deployment and emissions reductions, especially in developing countries. We conclude that learning and spillover effects can lead to technologically advanced cost-effective global energy transition pathways. We suggest that coordinated climate stabilization policies can serve as important institutional mechanisms that facilitate the required technological investments, especially in developing countries and thus ensure long-term cost reductions.

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Energy Specializations: Energy Modeling – Other; Energy and the Environment – Climate Change and Greenhouse Gases; Energy and the Environment – Policy and Regulation

JEL Codes:
C59 - Econometric Modeling: Other
Q54 - Climate; Natural Disasters and Their Management; Global Warming
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Keywords: Technological change, Climate policy, MESSAGE model, CO2 emissions mitigation

DOI: 10.5547/ISSN0195-6574-EJ-VolSI2006-NoSI1-5


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