The Environment and Directed Technical Change

Abstract

This paper introduces endogenous and directed technical change in a growth model with environmental constraints and limited resources. A unique final good is produced by combining inputs from two sectors. One of these sectors uses "dirty" machines and thus creates environmental degradation. Research can be directed to improving the technology of machines in either sector. We characterize dynamic tax policies that achieve sustainable growth or maximize intertemporal welfare, as a function of the degree of substitutability between clean and dirty inputs, environmental and resource stocks, and crosscountry technological spillovers. We show that: (i) in the case where the inputs are sufficiently substitutable, sustainable long-run growth can be achieved with temporary taxation of dirty innovation and production; (ii) optimal policy involves both "carbon taxes" and research subsidies, so that excessive use of carbon taxes is avoided; (iii) delay in intervention is costly: the sooner and the stronger is the policy response, the shorter is the slow growth transition phase; (iv) the use of an exhaustible resource in dirty input production helps the switch to clean innovation under laissez-faire when the two inputs are substitutes. Under reasonable parameter values (corresponding to those used in existing models with exogenous technology) and with sufficient substitutability between inputs, it is optimal to redirect technical change towards clean technologies immediately and optimal environmental regulation need not reduce long-run growth. We also show that in a two-country extension, even though optimal environmental policy involves global policy coordination, when the two inputs are sufficiently substitutable environmental regulation only in the North may be sufficient to avoid a global disaster.

Learning or lock-in: Optimal technology policies to support mitigation

“…Some researchers have argued that existing, technology unspecific instruments like patents and research subsidies are sufficient to foster innovations in the energy sector (Nordhaus, 2009). But other researchers maintain that policy intervention is necessary: Some identify spillovers as the cause of suboptimal innovation in carbon-free technologies (Kverndokk and Rosendahl, 2007;Fischer and Newell, 2008;Popp, 2006) while others see an initially high innovation rate in the carbon-intensive sector as the reason for suboptimal green innovation (Acemoglu et al, 2009). These papers, however, do not provide a convincing rationale why regulators should focus on market failures in energy innovations rather than in innovations in general: What is special about innovations in the energy sector to make technologyspecific policy intervention necessary?…”

The Environment and Directed Technical Change: Comment

“…From Figure 1 of (Acemoglu et al, 2011), the CO 2 lifetime in the AABH scenarios appears to be situated in the 50 years' range. However physical evidence suggests lifetime ranges beyond 10 000 years 8 .…”

“…Soμ ct ∼ 1 + (1+γηcsc) 1−σ 1+ρμ c,t+1 , thus: (Acemoglu et al, 2011)) and A c,t−1 = A ct /(1 + γη c s ct ) (equation (11) …”

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SummaryThis paper discusses the growth model with environmental constraints recently presented in (Acemoglu et al, 2011) which focuses on the redirection of technical change by climate policies with research subsidies and a carbon tax. First, Acemoglu et al's model and chosen parameters yield numerical results that do not support the conclusion that ambitious climate policies can be conducted "without sacrificing (much or any) long-run growth".

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Climate Change and Technical Progress: Impact of Informational Constraints

“…In recent years, endogenous growth models have appeared that distinguish between "clean" and "dirty" technologies. This type of modelling uses the notion of directed technical change and the most recent example of such a literature is the paper by Acemoglu et al [1]. The natural question one may ask is: what additional insight and implications follow from the inclusion of directed technical change into such a model.…”