Environmental Modeling & Assessment

, Volume 8, Issue 4, pp 291–301 | Cite as

Global Warming, Uncertainty and Endogenous Technical Change

  • Efrem Castelnuovo
  • Michele Moretto
  • Sergio Vergalli


What impact does ecological uncertainty have on agents' decisions concerning domestic emissions abatement, physical investments, and R&D expenditures? How sensitive are the answers to these questions when we move from exogenous to endogenous technical change? To investigate these issues we modify the ETC-RICE model described in Buonanno et al. (2001) by embedding in it a hazard rate function as in Bosello and Moretto (1999). With this model at hand we run numerical optimisations focusing our attention on the control variables of the representative agents, i.e., domestic abatement rate, investments in physical capital, and R&D spending, as well as on the endogenous patterns of GDP level and CO2 emissions. Our results show that uncertainty strongly influences agents behaviour; in particular, agents slow down their emissions in order to maintain a more sustainable growth path. In addition, R&D expenditures trigger the “engine of growth” exclusively when environmental technical change is formalized in an endogenous fashion. However, even if environmental uncertainty may stimulate technical change, long-run growth it turns out to be negatively affected by the former, as also predicted by Clarke and Reed (1994) Tsur and Zemel (1996) and Bosello and Moretto (1999).

climate change endogenous technical change uncertainty 


Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.


  1. [1]
    P. Buonanno, C. Carraro, E. Castelnuovo and M. Galeotti, Emission trading restrictions with endogenous technological change, International Agreements: Politics, Law and Economics 3 (2001) 379-395.Google Scholar
  2. [2]
    F. Bosello and M. Moretto, Dynamic uncertainty and global warming risk, FEEM working paper, n. 80.99 (1999).Google Scholar
  3. [3]
    H.R. Clarke and W.J. Reed, Consumption/pollution trade-offs in an environment vulnerable to pollution-related catastrophic collapse, Journal of Economic Dynamics and Control 18 (1994) 991-1010.Google Scholar
  4. [4]
    Y. Tsur and A. Zemel, Accounting for global warming risks: resource management under event uncertainty, Journal of Economic Dynamics and Control 20 (1996) 1289-1305.Google Scholar
  5. [5]
    R.S. Pindyck, Irreversibilities and the timing of environmental policy, Resource and Energy Economics 22 (2000) 233-259.Google Scholar
  6. [6]
    IPCC, Climate Change 1995, Economic and Social Dimensions of Climate Change, Contribution of Working Group III to the Second Assessment Report of the Intergovernmental Panel on Climate Change (Cambridge University Press, Cambridge, UK, 1996).Google Scholar
  7. [7]
    IPCC, Climate Change 1995, Impacts, Adoptions and Mitigation of Climate Change: Scientific-Technical Analyses, Contribution of Working Group II to the Second Assessment Report of the Intergovernmental Panel on Climate Change (Cambridge University Press, Cambridge, UK, 1996).Google Scholar
  8. [8]
    IPCC, Climate Change 1995, The Science of Climate Change, Contribution of Working Group I to the Second Assessment Report of the Intergovernmental Panel on Climate Change (Cambridge University Press, Cambridge, UK, 1996).Google Scholar
  9. [9]
    A.C. Fisher, Introduction to the special issue on irreversibility, Resource and Energy Economics 22 (2000) 189-196.Google Scholar
  10. [10]
    R.A. Kerr, West Antarctica's weak underbelly giving way?, Science 281 (2000) 499-500.Google Scholar
  11. [11]
    W.D. Nordhaus, Global public goods and the problem of global warming, Annual Lecture of the 3rd Toulouse Conference of Environment and Resource Economics, Toulouse, 14-16 June (1999).Google Scholar
  12. [12]
    A.S. Manne and R.G. Richels, Buying Greenhouse Insurance-The Economic Costs of CO2 Emissions Limits (MIT Press, Cambridge MA, 1992).Google Scholar
  13. [13]
    S.C. Peck and T.J. Teisberg, Global warming uncertainties and the value of information: an analysis using CETA, Resource and Energy Economics 15 (1993) 71-97.Google Scholar
  14. [14]
    A.S. Manne, Hedging strategies for global carbon dioxide abatement: a summary of Poll results, EMF 14 Subgroup: Analysis for Decisions under Uncertainty, Draft (1996).Google Scholar
  15. [15]
    W.D. Nordhaus and D. Popp, What is the value of scientific knowledge? An application to global warming using the PRICE model, The Energy Journal 18(1) (1997) 1-45.Google Scholar
  16. [16]
    R.S.J. Tol, On the optimal control of carbon dioxide emissions: an application of the FUND, Environmental Modelling and Assessment 3 (1997) 3-18.Google Scholar
  17. [17]
    E.L. Plambeck and C. Hope, An updated valuation of the impacts of global warming, Energy Policy 24(9) (1996) 783-793.Google Scholar
  18. [18]
    H. Dowlatabadi and M. Kandlikar, Key uncertainties in climate change policy: results form ICAM-2, in The Sixth Global Warming Conference 1995, San Francisco, CA (1995).Google Scholar
  19. [19]
    G. Yohe, Exercises in hedging against extreme consequences of global change and the expected value of information, Global Environmental Change 2 (1996) 87-101.Google Scholar
  20. [20]
    M.L. Cropper, Regulating activities with catastrophic environmental effects, Journal of Environmental Economics and Management 3 (1976) 1-15.Google Scholar
  21. [21]
    G.M. Heal, Interactions between economy and climate: a framework for policy design under uncertainty, in: Advances in Applied Micro-Economics, Vol. 3, eds. V. Kerry Smith and A. Dryden White (JAI Press, Greenwich, CT, 1984) pp. 151-168.Google Scholar
  22. [22]
    B.A. Larson and J.A. Tobey, Uncertain climate change and the international policy response, Ecological Economics 11 (1994) 77-84.Google Scholar
  23. [23]
    A. Torvanger, Uncertain climate change in an intergenerational planning model, Environmental and Resource Economics 9 (1997) 103-124.Google Scholar
  24. [24]
    W.D. Nordhaus, Managing the Global Commons-The Economics of the Climate Change (MIT Press, Cambridge, MA, 1994).Google Scholar
  25. [25]
    J. Gjerde, S. Grepperud and S. Kverndokk, Optimal climate policy under the possibility of a catastrophe, Resource and Energy Economics 21 (1999) 289-317.Google Scholar
  26. [26]
    M. Grubb, Technologies, energy systems and the timing of CO2 emissions abatement, Energy Policy 25(2) (1997) 159-172.Google Scholar
  27. [27]
    C. Carraro and J.C. Hourcade, Climate modelling and policy strateE. Castelnuovo et al. / Global warming, uncertainty and endogenous technical change 301 gies. The role of technical change and uncertainty, Energy Economics 20 (1998) 463-471.Google Scholar
  28. [28]
    C. Carraro and D. Siniscalco, Environmental policy reconsidered: the role of technological innovation, European Economic Review 38 (1994) 545-554.Google Scholar
  29. [29]
    A.B. Jaffe, R.G. Newell and R.N. Stavins, Technological change and the environment, Resources for the Future Discussion Paper 00-47, Washington (2001).Google Scholar
  30. [30]
    M. Galeotti and C. Carraro, Traditional environmental instruments, Kyoto mechanisms and the role of technical change, mimeo (2002).Google Scholar
  31. [31]
    A. Löschel, Technological change in economic model of environmental policy: a survey, FEEM WP #4.02 (2002).Google Scholar
  32. [32]
    J.E. Aldy, P.E. Orszag and J.E. Stiglitz, Climate change: an agenda for global collective action, AEI-Brookings Joint Center for Regulatory Studies, December (2001).Google Scholar
  33. [33]
    W.D. Nordhaus and Z. Yang, A regional dynamic general-equilibrium model of alternative climate-change strategies, American Economic Review 4 (1996) 741-765.Google Scholar
  34. [34]
    W.D. Nordhaus, Modeling induced innovation in climate-change policy, paper presented at the IIASA Workshop on Induced Technological Change and the Environment, Laxenburg, 26-27 June (1997).Google Scholar
  35. [35]
    L.H. Goulder and K. Mathai, Optimal CO2 abatement in the presence of induced technological change, Journal of Environmental Economics and Management 39 (2000) 1-38.Google Scholar
  36. [36]
    J. Eyckmans and H. Tulkens, Simulating with RICE coalitionally stable burden sharing agreements for the climate change problem, CLIMNEG Working Paper, CORE, Université Catholique de Louvain (1999).Google Scholar
  37. [37]
    N.M. Kiefer, Economic duration data and hazard functions, Journal of Economic Literature XXVI (1988) 646-679.Google Scholar
  38. [38]
    C. Bentley, Rapid sea-level rise soon from west antartic ice sheet collapse?, Science 275 (1997) 1077-1078.Google Scholar
  39. [39]
    Z. Griliches, Issues in assessing the contribution of R&D to productivity growth, Bell Journal of Economics 10 (1979) 92-116.Google Scholar
  40. [40]
    Z. Griliches, R&D, Patents, and Productivity, Chicago (University of Chicago Press, 1984).Google Scholar
  41. [41]
    J.P. Weyant, Technological change and climate policy modeling, paper presented at the IIASA Workshop on Induced Technological Change and the Environment, Laxenburg, 26-27 June (1997).Google Scholar
  42. [42]
    J.P. Weyant and T. Olavson, Issues in modelling induced technological change in energy, environmental, and climate policy, Environmental Modelling and Assessment 4 (1999) 67-85.Google Scholar
  43. [43]
    P. Buonanno, C. Carraro and M. Galeotti, Endogenous induced technical change and the costs of Kyoto, FEEM working paper n. 61 (2001).Google Scholar
  44. [44]
    T.C. Schelling, Some economics of global warming, American Economic Review 82 (1992) 1-14.Google Scholar
  45. [45]
    R.J. Barro and X. Sala-i-Martin, Economic Growth (MIT Press, 1999).Google Scholar
  46. [46]
    M. Kremer and D. Webber, Stimulating industrial R&D for neglected diseases: economic perspectives, at http://post.economics.harvard. edu/faculty/kremer/papers/WHO\_bullettin.pdf, forthcoming in the Bullettin of the World Health Organization.Google Scholar
  47. [47]
    B. Hall and J. Van Reenen, How effective are fiscal incentives for R&D? A review of the evidence, Research Policy 29 (2000) 449-469.Google Scholar
  48. [48]
    T. Klette, J. Møen and Z. Griliches, Do subsidies to commercial R&D reduce market failures? Microeconometric evaluation studies, Research Policy 29 (2000) 471-495.Google Scholar
  49. [49]
    M. Trajtenberg, R&D policy in Israel: an overview and reassessment, NBER WP #7930 (2000).Google Scholar
  50. [50]
    P.M. Romer, Should the government subsidize supply or demand for scientists and engineers?, in: Innovation Policy and the Economy, eds. A. Jaffe et al. (MIT Press, Cambridge, MA, 2000).Google Scholar

Copyright information

© Kluwer Academic Publishers 2003

Authors and Affiliations

  • Efrem Castelnuovo
    • 1
  • Michele Moretto
    • 2
  • Sergio Vergalli
    • 3
  1. 1.Bocconi University and Fondazione Eni Enrico MatteiMilanoItaly
  2. 2.University of Brescia and Fondazione Eni Enrico MatteiBresciaItaly
  3. 3.University of Padua and Fondazione Eni Enrico MatteiPadovaItaly

Personalised recommendations