Endogenous technological change in climate change modelling

This article investigates the impact on optimal CO2 abatement and carbon tax levels of introducing endogenous technological change in a macroeconomic model of climate change. We analyse technological change as a function of cumulative capacity, as incorporated recently in energy-systems models. Our calculations confirm that including endogenous innovation implies earlier emission reduction to meet atmospheric carbon concentration constraints. However, the effect is stronger than suggested in the literature. Moreover, the development of non-fossil energy technologies constitutes the most important opportunity for emission reductions. Optimal carbon tax levels, reducing fossil energy use, are lower than usually advocated. (C) 2002 Elsevier Science B.V. All rights reserved.