Energy Efficiency and Directed Technical Change: Implications for Climate Change Mitigation

Abstract I develop a directed technical change model of economic growth and energy efficiency in order to study the impact climate mitigation policies on use. show that standard Cobb–Douglas production function used environmental macroeconomics literature overstates reduction cumulative use can be achieved with given path taxes. also that, model, government combines taxes research development (R&D) policy favors output-increasing technology—rather than technology—to maximize welfare subject constraint In addition, dynamics following sudden improvements efficiency. Exogenous shocks increase decrease incentive for subsequent R&D long-run relative world without original shock. Subsidies R&D, however, permanently alter incentives