Induced technical change and the cost of climate policy
Author(s)Sue Wing, Ian.
This paper investigates the potential for a carbon tax to induce R&D, and for the consequent induced technical change (ITC) to lower the macroeconomic cost of abating carbon emissions. ITC is modelled within a general equilibrium simulation of the U.S. economy by the effects of emissions restrictions on the level and composition of aggregate R&D, the accumulation of the stock of knowledge, and the industry-level reallocation and substitution of intangible services derived therefrom. Contrary to other authors, I find that ITC's impact is large, positive and dominated by the latter "substitution effect," which mitigates most of the deadweight loss of the tax.
Abstract in HTML and technical report in PDF available on the Massachusetts Institute of Technology Joint Program on the Science and Policy of Global Change website (http://mit.edu/globalchange/www/).
;Report no. 102
induced technical change, climate-change policy, computable general equilibrium models