Induced Technological Change: Exploring its Implications for the Economics of Atmospheric Stabilization: Synthesis Report from the Innovation Modeling Comparison Project

This paper summarizes results from ten global economy-energy-environment models implementing mechanisms of endogenous technological change (ETC). Climate policy goals represented as different CO2 stabilization levels are imposed, and the contribution of induced technological change (ITC) to meeting the goals is assessed. Findings indicate that climate policy induces additional technological change, in some models substantially. Its effect is a reduction of abatement costs in all participating models. The majority of models calculate abatement costs below 1 percent of present value aggregate gross world product for the period 2000-2100. The models predict different dynamics for rising carbon costs, with some showing a decline in carbon costs towards the end of the century. There are a number of reasons for differences in results between models; however four major drivers of differences are identified. First, the extent of the necessary CO2 reduction which depends mainly on predicted baseline emissions, determines how much a model is challenged to comply with climate policy. Second, when climate policy can offset market distortions, some models show that not costs but benefits accrue from climate policy. Third, assumptions about long-term investment behavior, e.g. foresight of actors and number of available investment options, exert a major influence. Finally, whether and how options for carbon-free energy are implemented (backstop and end-of-the-pipe technologies) strongly affects both the mitigation strategy and the abatement costs.