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GTAP Resource #4153

"Implementing induced technological change under carbon pricing in a stylised recursively dynamic CGE model"
by Cao, Liangyue

Carbon pricing provides an incentive for industries to reduce the emissions of their production. One way to model this reduction is through marginal abatement cost (MAC) curves, where firms reduce their emission intensity of production in response to a carbon price. This paper tries to implement MAC curves through induced technological change from research and development (R&D) investment, where firms allocate R&D investment to develop technologies to reduce their emissions to minimise the carbon emissions costs under carbon pricing.

Policy induced technological change on emissions abatement is generally modelled through inter-temporal optimisation problems in many published papers in the literature, as the benefit of R&D investment occurs in the future periods.

This paper models the induced technological change in a stylised recursively dynamic CGE model for the illustration of proof-of-concept. It tests an approach where the induced technological change occurs only in relevant firms which have very limited substitution between their production inputs and clean inputs. These firms choose their production inputs and R&D investment to minimise their production costs including carbon emission costs and the R&D investment costs to produce a given output, where the emission intensity of production is a decreasing function of R&D investment and asymptotically approaches to a specified lower bound.

Implementing the technological change through R&D investment takes account of costs of the technological change automatically, which means, the technological change on emissions abatement is fully costed in the stylised model. Some model simulations will illustrate the R&D investments responding to carbon pricing, and their effects on emissions and economic costs.

Resource Details (Export Citation) GTAP Keywords
Category: 2013 Conference Paper
Status: Published
By/In: Presented at the 16th Annual Conference on Global Economic Analysis, Shanghai, China
Date: 2013
Created: Cao, L. (4/15/2013)
Updated: Cao, L. (4/15/2013)
Visits: 736
- Dynamic modeling
- Climate change policy
- Not Applicable

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