Avoiding dangerous climate change by inducing technological progress: scenarios using a large-scale econometric model

TitleAvoiding dangerous climate change by inducing technological progress: scenarios using a large-scale econometric model
Publication TypeTyndall Working Paper
SeriesTyndall Centre Working Papers
Tyndall Consortium Institution


Secondary TitleTyndall Centre Working Paper 77
KeywordsAvoiding, inducing technological progress, large-scale econometric model, scenarios
AuthorsBarker, T., J. Kohler, H. Pan, Rachel Warren, and S. Winne
Year of Publication2005

This paper addresses the question of the costs of stabilising atmospheric concentrations of carbon dioxide at three levels 550ppm, 500ppm and 450ppm, with the emissions projected to 2100. Two policy instruments are used to achieve these targets: emission trading permits for the energy industries and carbon taxes for the rest of the economy, with the revenues recycled to prevent extra inflation. These are applied at different rates and at different times to allow for early action under the UN Framework Convention for three regional groupings: the USA, the rest of the Annex I countries and all non-Annex I countries. Extra investment in non-fossil technologies is induced by the permit schemes and taxes since they lead to substantial increases in the real cost of burning fossil fuels according to their carbon content. This prompts a switch to low-carbon technologies. The ensuing world-wide wave of extra investment, diffused by export-led growth in nearly all sectors and regions over the century to 2100, raises the rate of economic growth in the model solution, i.e. growth is endogenous. There is a purely economic benefit in stabilisation, which increases with more demanding targets. This finding complements the literature showing reductions in the modelled costs of achieving stabilisation when induced technological change is taken into account, but which generally assume that GDP is largely given by assumption. The approach is novel in the treatment of technological change within long-term economic models since it is based on cross-section and time-series data analysis of the global system 1970-2001 using formal econometric techniques and thus provides a different perspective on stabilisation costs. In particular, a sectoral and regionally specific analysis is presented using the model E3MG (energy-environment-economy model at the global level), coupled to the simple climate model MAGICC, which are both components of the Community Integrated Assessment System (CIAS) of the UK Tyndall Centre.

wp77.pdf1.57 MB