Innovation in climate policy models: Implementing lessons from the economics of R&D

Only recently have economists considered the effect of induced innovation in climate policy models. One reason is that, until recently, empirical evidence of the magnitude of such effects was unavailable. Drawing on my experiences with empirical studies on innovation and from modeling the climate change problem, in this paper, I present key lessons from the empirical literature on innovation and environmental policy, and discuss how much of the variation in results found in the modeling literature can be explained by differences in implementing (or failing to implement) these lessons into climate models. The paper concludes with a discussion of future research needs, focusing on a framework for improving the modeling of technology diffusion in climate change models. (c) 2006 Elsevier B.V. All rights reserved.