Energy and Climate Policy

Bending the Technological Trajectory

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Technological innovation can lower the cost of achieving environmental objectives, so it is important to understand how environmental policy design and technological innovation are linked. This is particularly true in the area of climate change where the estimated future costs of reducing greenhouse gas emissions are affected greatly by the technological trajectory of the economy. While we suspect that public policy can play an important role in accelerating the development and diffusion of climate change mitigation and adaptation technologies, empirical evidence in this area remains scant. This book presents a series of papers that explore the extent to which technological innovation can lower the cost of achieving climate change mitigation objectives.

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Technological change, fuel efficiency and carbon intensity in electricity generation: A cross-country empirical study

In this chapter we present the results of an empirical analysis of the determinants of energy efficiency in fossil fuel electricity generation across 28 OECD economies over the period 1981-2006. We pay particular attention to the role played by technological development. Results show that the input mix, capacity utilization and new investment in capacity play a significant role in increasing energy efficiency. Increasing the knowledge stock is also associated with higher efficiency levels, with the effect varying significantly depending upon assumptions concerning the extent of international knowledge spillovers. Given the link between increased efficiency and lower CO2 emissions, we conclude that technological change has a negative effect on carbon intensity, while changing the input mix affects CO2 intensity both through an increase in efficiency as well as by lowering the input-weighted emission factor.

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