Optimal CO2-abatement with Socio-economic Inertia and Induced Technological Change

Abstract

The impact of induced technological change (ITC) in energy/climate models on the timing of optimal CO2-abatement depends on whether R&D or learning-by-doing (LBD) is the driving force. Bottom-up energy system models employing LBD suggest strong increases in optimal early abatement. In this paper we extend an existing top-down model supporting this view according to the notion that socio-economic inertia interferes with rapid technological change. We derive analytical results concerning the impact of inertia and ITC on optimal initial abatement and show a wide range of numerical simulations to illustrate magnitudes. Inertia now dominates the timing decision on early abatement, such that LBD might even have a negative effect on early abatement and the impact of R&D is limited. However, ITC still reduces costs of stabilizing atmospheric CO2-concentrations considerably.