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Directed technical change with capital-embodied technologies: Implications for climate policy

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  • Lennox, James A.
  • Witajewski-Baltvilks, Jan

Abstract

We develop a theoretical model of directed technical change in which clean (zero-emissions) and dirty (emissions-intensive) technologies are embodied in long-lived capital stocks. Switching from dirty to clean innovation leads to ongoing reductions in the relative costs of producing clean investment goods, making them ever cheaper to purchase and so encouraging clean investment. At the same time, falling replacement costs imply falling asset values. Consequently, continuing innovation in capital-embodied clean technologies also generates obsolescence costs, which are borne by users of clean capital. The negative effect of obsolescence costs on demand for clean investment and consequently on the speed of transition to clean growth has been neglected in the literature on directed technical change.

Suggested Citation

  • Lennox, James A. & Witajewski-Baltvilks, Jan, 2017. "Directed technical change with capital-embodied technologies: Implications for climate policy," Energy Economics, Elsevier, vol. 67(C), pages 400-409.
    • Handle: RePEc:eee:eneeco:v:67:y:2017:i:c:p:400-409
    DOI: 10.1016/j.eneco.2017.08.005
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    Cited by:

    1. Lennox, James & Parrado, Ramiro, 2015. "Capital-embodied Technologies in CGE Models," Climate Change and Sustainable Development 196998, Fondazione Eni Enrico Mattei (FEEM).
    2. Emanuele Campiglio & Alessandro Spiganti & Anthony Wiskich, 2023. "Clean innovation and heterogeneous financing costs," Working Papers 2023: 07, Department of Economics, University of Venice "Ca' Foscari".
    3. Emanuele Campiglio & Alessandro Spiganti & Anthony Wiskich, 2023. "Clean Innovation, Heterogeneous Financing Costs, and the Optimal Climate Policy Mix," CAMA Working Papers 2023-25, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University, revised May 2024.

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    More about this item

    Keywords

    Climate mitigation; Directed technical change; Capital embodiment; Obsolescence; Carbon tax; R&D subsidies;
    All these keywords.

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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