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How does climate policy affect the pace and direction of technical change? Theory and applications in a general equilibrium framework


There is widespread agreement that governments must act to enhance the innovation and widespread diffusion of clean technologies if we are to avoid dangerous climate change. This is evidenced in the 2010 UNFCCC Cancun Agreements. However, there is neither political nor even academic consensus on exactly what exactly actions will best meet these objectives. Recent theoretical and empirical research has enhanced our understanding of the effects of climate policies on technological change, but significant gaps remain.

The aim of this proposal is to improve understanding of how climate policies affect the pace and direction technical change through the market-driven innovation and diffusion of technologies. We will build on recently developed theoretical models in which the direction of technical change is endogenously determined by profit-driven innovation in imperfectly competitive markets. The first contribution of our research is to extend this theoretical framework so that we may study the pace, as well as the direction of technical change. Moreover, we will allow for both trade and knowledge flows between regions.

We will investigate the effects of technology-, investment- and trade- related policies on innovation and international diffusion of clean and dirty technologies and on the global climate. Theoretical analysis and numerical simulations of stylised models will provide qualitative insights. These will be complemented by empirical assessments using a modified version of the Intertemporal Computable Equilibrium System (ICES) model that has been developed by the host institution. Taking advantage of the multiregional and multisectoral structure of ICES, our study will be distinguished by consideration of both disembodied and embodied channels of technical diffusion.

Call for proposal

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Corso Magenta 63
20123 Milano
Activity type
Research Organisations
EU contribution
€ 181 175,70
Administrative Contact
Monica Eberle (Ms.)