A 'putty-practically-clay' vintage model with R&D driven biases in energy-saving technical change

van Zon, Adriaan and Lontzek, Thomas (2005). A 'putty-practically-clay' vintage model with R&D driven biases in energy-saving technical change. UNU-MERIT Research Memoranda. UNU-MERIT.

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UNU-MERIT Research memoranda

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  • Sub-type Working paper
    Author van Zon, Adriaan
    Lontzek, Thomas
    Title A 'putty-practically-clay' vintage model with R&D driven biases in energy-saving technical change
    Series Title UNU-MERIT Research Memoranda
    Volume/Issue No. 6
    Publication Date 2005
    Place of Publication Maastricht, NL
    Publisher UNU-MERIT
    Pages 39
    Language eng
    Abstract This paper deals with the problem of tackling the adverse effect of output growth on environmental quality. For this purpose we use an intermediate sector that builds 'putty-practically-clay' capital consisting of an energy-raw capital amalgam used for final goods production. The putty-practically-clay model is a strongly simplified version of a full putty-clay model, that mimics all the relevant behaviour of a full putty-clay model, but that does not entail the administrative hassle of a full putty-clay vintage model. In addition to this, we introduce an R&D sector that develops renewable- and conventional energy-based technologies. The allocation of R&D activities over these two uses of R&D gives rise to an induced bias in technical change very much as in Kennedy (1964). In the context of our model, this implies that technological progress is primarily driven by the desire to counteract the upward pressure on production cost implied by a continuing price increase of conventional energy resources. Hotelling's rule suggests that this price rise is unavoidable in the face of the ongoing depletion of conventional energy reserves. By means of some illustrative model simulations we study the effects of energy policy on the dynamics of the model for alternative policy options aimed at achieving GHG emission reductions. We identify the conditions under which energy policy might partly backfire and present some non-standard policy implications.
    Keyword Induced biased
    Technological change
    Putty-clay
    Energy
    Renewable resources
    JEL E22
    O31
    O33
    Q42
    Q48
    Copyright Holder UNU-MERIT
    Copyright Year 2005
    Copyright type All rights reserved
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