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Cross-cutting paper, technical progress (Marzio Galeotti, Valentina Bosetti)

Technological change is a major force in a country¿s economic growth. Since before the industrial revolution, economies and societies have evolved as a result of technological change. They have moved from a reliance on wind, water, animal power, and wood to reliance first on coal, and then on natural gas and petroleum. Today, many technologies utilize fossil fuels, which have led to the release of large amounts of carbon to the atmosphere, and the scientific consensus is that these releases will cause the earth¿s climate to change. Fortunately, however, technology does not stand still. Technological innovation is increasingly seen as one of the main practical keys for reconciling the current fundamental conflict between economic activity and the environment.
No one really believes or is ready to accept that the solution of the climate change problem consists of reducing the pace of economic growth. Instead, it is believed that changes in technology will bring about the longed de-coupling of economic growth from generation of polluting emissions. There is a difference in attitude in this respect, though. Some maintain a faithful view that technological change, having a life of its own, will automatically solve the problem. In contrast, others express the conviction that the process of techno-logical change by and large responds to impulses and incentives, and it has therefore to be fostered by appropriate policy actions.

Technological change generally leads to the substitution of obsolete and dirty technologies with cleaner ones. It must be borne in mind however, that technical change is not per se always environment-friendly, as it can lead to the emergence of new sectors and industries with new kinds and degrees of pollution problems, like the generation of new harmful pollutants. There are therefore no substitutes for policy in directing the innovation efforts toward fostering economic growth and helping the environment at the same time.

All the above remarks are reflected in climate models, the main quantitative tools de-signed either to depict long run energy and pollution scenarios or to assist in climate change policy analysis. Climate models have traditionally accounted for the presence of technical change, albeit usually evolving in an exogenous fashion. More recently, how-ever, models have been proposed where the technology changes endogenously and/or its change is induced by deliberate choices of agents and government intervention. We have therefore moved or are moving toward to an endogenous and induced formulation of technical change. In particular, both bottom-up and top-down models, a long standing distinction in energy-economy-environment modelling, have been recently modified in order to accommodate forms of endogenous technical change. As it turns out, the bottom-up approach has mostly experimented with the notion of Learning by Doing (LbD hence-forth), while a few top-down models have entertained the notion of a stock of knowledge which accumulates over time via R&D spending (see Galeotti and Carraro, 2003 for a survey).

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