Climatic Change

, Volume 136, Issue 1, pp 39–55 | Cite as

The influence of economic growth, population, and fossil fuel scarcity on energy investments

  • Enrica De CianEmail author
  • Fabio Sferra
  • Massimo Tavoni


This paper examines the dynamics of energy investments and clean energy Research and Development (R&D) using a scenario-based modeling approach. Starting from the global scenarios proposed in the RoSE model ensemble experiment, we analyze the dynamics of investments under different assumptions regarding economic and population growth as well as availability of fossil fuel resources, in the absence of a climate policy. Our analysis indicates that economic growth and the speed of income convergence across countries matters for improvements in energy efficiency, both via dedicated R&D investments but mostly through capital-energy substitution. In contrast, fossil fuel prices, by changing the relative competitiveness of energy sources, create an economic opportunity for radical innovation in the energy sector. Indeed, our results suggest that fossil fuel availability is the key driver of investments in low carbon energy innovation. However, this innovation, by itself, is not sufficient to induce emission reductions compatible with climate stabilization objectives.


Fossil Fuel Total Factor Productivity Energy Intensity Carbon Intensity Breakthrough Technology 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.

Supplementary material

10584_2013_902_MOESM1_ESM.docx (123 kb)
ESM 1 (DOCX 123 kb)


  1. Ahmad S (1966) On the theory of induced invention. Econ J 76(302):344–357Google Scholar
  2. Ang B (2005) The LMDI approach to decomposition analysis: a practical guide. Energy Pol 33(7):867–871. doi: 10.1016/j.enpol.2003.10.010 CrossRefGoogle Scholar
  3. Baker E, Shittu E (2006) Profit maximizing R&D investment in response to a random carbon tax. Resour Energy Econ 28:105–192CrossRefGoogle Scholar
  4. Blanford GJ (2009) R&D investment strategy for climate change. Energy Econ 31(S1):S27–S36CrossRefGoogle Scholar
  5. Bosetti V, Victor DG (2011) Politics and economics of second-best regulation of greenhouse gases: the importance of regulatory credibility. The Energy Journal, International Association for Energy Economics 32(1):1–24Google Scholar
  6. Bosetti V, De Cian E (2013) How to make the most of unilateral climate action? Environ Resour Econ. doi: 10.1007/s10640-013-9643-1 Google Scholar
  7. Bosetti V, Carraro C, Galeotti M, Massetti E, Tavoni M (2006) WITCH: a world induced technical change hybrid model. Energy J, Special Issue on Hybrid Modeling of Energy-Environment Policies: Reconciling Bottom-up and Top-down 13–38Google Scholar
  8. Bosetti V, Carraro C, Duval R, Sgobbi A, Tavoni M (2009a) The role of R&D and technology diffusion in climate change mitigation: new perspectives using the WITCH model. OECD Working Paper No. 664, FebruaryGoogle Scholar
  9. Bosetti V, Carraro C, Tavoni M (2009b) Climate policy after 2012. Technology, timing, participation. CESifo Econ Stud 55(2):235–254CrossRefGoogle Scholar
  10. Clarke L, Edmonds J, Krey V, Richels R, Rose S, Tavoni M (2009) International climate policy architectures: overview of the EMF 22 International scenarios. Energy Econ 31(Supplement 2):S64–S81. doi: 10.1016/j.eneco.2009.10.013 Google Scholar
  11. De Cian E, Tavoni M (2012) Can technology externalities justify carbon trade restrictions? Resour Energy Econ 34:624–646CrossRefGoogle Scholar
  12. De Cian E, Bosetti V, Tavoni M (2012) Technology innovation and diffusion in less than ideal climate policies. An assessment with the WITCH model. Clim Chang 114(1):121–143CrossRefGoogle Scholar
  13. Edenhofer O, Knopf B, Barker T, Baumstark L, Bellevrat E, Chateau B, Criqui P, Isaac M, Kitous A, Kypreos S, Leimbach M, Lessmann K, Magné B, Scrieciu S, Turton H, van Vuuren DP (2010) The economics of low stabilization: model comparison of mitigation strategies and costs. Energy J 31(Special Issue 1)Google Scholar
  14. Hicks JR (1932) The theory of wages. McMillan, LondonGoogle Scholar
  15. Hübler M (2011) Technology diffusion under contraction and convergence: a CGE analysis of China. Energy Econ 33(1):131–142CrossRefGoogle Scholar
  16. Hübler M, Steckel J (2012) Economic growth, decarbonization, and international transfers. Clim Dev 4(2):88–103CrossRefGoogle Scholar
  17. Hübler M, Baumstark L, Leimbach M, Edenhofer O, Bauer N (2012) An integrated assessment model with endogenous growth. Ecol Econ 83:118–131CrossRefGoogle Scholar
  18. Kriegler E, Mouratiadou I et al (2013) Energy system transformations for mitigating climate change: What role for economic growth projections and fossil fuel availability? Clim Chang (this issue)Google Scholar
  19. Leimbach M, Baumstark L (2010) The impact of capital trade and technological spillovers on climate policies. Ecol Econ 69:2341–2355CrossRefGoogle Scholar
  20. Luderer G, Bosetti V, Jakob M, Leimbach M, Edenhofer O (2012) The economics of decarbonizing the energy system: results and insights from the RECIPE model intercomparison. Clim Chang 114(1):9–37CrossRefGoogle Scholar
  21. Newell R, Jaffe A, Stavins R (1999) The induced innovation hypothesis and energy-saving technological change. Q J Econ 114(3):941–975CrossRefGoogle Scholar
  22. Popp D (2002) Induced innovation and energy prices. Am Econ Rev 92(1):160–180CrossRefGoogle Scholar
  23. Popp DC, Richard NG, Adam JB (2009) Energy, the environment, and technological change, NBER Working Paper Series No. w14832.
  24. Richels R, Blanford G (2008) The value of technological advance in decarbonizing the U.S. economy. Energy Econ 30(6):2930–2946CrossRefGoogle Scholar
  25. Rogner HH, Nakicenovic R, Grübler A (1993) Second- and third-generation energy technologies. Energy 18:461–484CrossRefGoogle Scholar
  26. Ruttan VW (2001) Technology, growth, and development. Oxford University Press, New YorkGoogle Scholar
  27. Tavoni M, De Cian E, Luderer G, Steckel J, Waisman H (2012) The value of technology and of its evolution towards a low carbon economy. Climatic Change, Special Issue: On the Economics of Decarbonization in an Imperfect World 114(1):39–57Google Scholar

Copyright information

© Springer Science+Business Media Dordrecht 2013

Authors and Affiliations

  1. 1.Fondazione Eni Enrico Mattei (FEEM) and Euro-Mediterranean Center on Climate Change (CMCC)VeniceItaly
  2. 2.Fondazione Eni Enrico Mattei (FEEM) and Euro-Mediterranean Center on Climate Change (CMCC)MilanItaly

Personalised recommendations