General Purpose Technologies and Energy Policy

Abstract

We employ a general purpose technology model with endogenous stochasticgrowth to simulate the effects of different energy policy schemes. AResearch and Development (R&D) sector produces endogenous growth bydeveloping radical and incremental technologies. These innovationsresult in blueprints for intermediate goods, which require raw capitaland either carbon-based or non-carbon-based fuels. A carbon taxtherefore affects not only the final production sector but also the R&Dsector by making the development of non-carbon-based technologies moreattractive. Due to path dependencies and possible lock-in situations,economic policy can have a significant long-term impact on the energystructure of the economy. We examine the effects of different carbonpolicies on growth and environmental quality. We find that ananti-carbon policy may reduce growth initially, but in the long runthere is a strong potential for a ``double dividend{''} due to fastergrowth and reduced pollution.