Endogenous Technological Change In The Dice Integrated Assessment Model

• Main Author: Barron, Robert W
• Format: Others
• Published: ScholarWorks@UMass Amherst 2013
• Subjects: Integrated Assessment Model; Technological Change; Climate Change; Carbon Policy; Climate Policy
• Online Access: https://scholarworks.umass.edu/theses/1106; https://scholarworks.umass.edu/cgi/viewcontent.cgi?article=2229&context=theses

Integrated Assessment Models (IAM)s play a key role in climate policy research; however, many IAMs are limited by their treatment of technological change. This is a particularly vexing limitation because technological change significantly affects the optimal carbon policy. We propose a means of incorporating technological change within the Dynamic Integrated Model of the Climate and Economy (DICE). We modify DICE to allow it to adjust the cost of CO2 abatement based on the demand for solar photovoltaic generating capacity. We find that deployment of solar photovoltaics (PV) is highly sensitive to returns to scale and the grid integration costs associated with PV intermittency. At low returns to scale integration costs cause PV to be deployed in steps, reducing the benefit of scale effects; at higher returns to scale PV is deployed smoothly but is arrested integration costs become significant; and when returns are high PV becomes so inexpensive that it’s deployed widely in spite of integration costs. The implication of this behavior is that the optimal allocation of research and development resources depends on returns to scale in the solar market: if returns to scale are low, R&D should focus on PV itself, while if they’re high, R&D should focus on reducing integration costs.