Induced technological change under carbon taxes

We study changes in fossil fuel and non-fossil energy use and carbon dioxide emissions induced by carbon taxes. We develop a partial energy equilibrium model with capital and labor as production factors, and endogenous technological change through learning by doing and learning through research, distinguishing between private and public innovations. Our model reproduces the learning curves typical for energy system engineering models. The model also produces an endogenous S-curved transition from fossil fuel energy sources to non-fossil energy sources over the coming two centuries. It is shown that, (i) induced technological change accelerates the substitution of non-fossil energy for fossil fuels substantially. Also, (ii) a temporary carbon tax has a permanent effect on the technological progress of the non-fossil energy and advances the transition towards it.