Optimal energy investment and R&D strategies to stabilise atmospheric greenhouse gas concentrations

Stabilising the atmospheric concentrations of greenhouse gases (GHGs) at levels expected to prevent dangerous climate changes has become an important, long-term global objective. It is therefore crucial to identify a cost-effective way to achieve this objective. This paper uses WITCH, a hybrid climate–energy–economy model, to obtain a quantitative assessment of equilibrium strategies that stabilise CO2 concentrations at 550 or 450 ppm. Since technological change is endogenous and multifaceted in WITCH, and the energy sector is modeled in detail, the paper provides a description of the ideal combination of technical progress and alternative energy investment paths in achieving the sought stabilisation targets. Given that the model accounts for interdependencies and spillovers across 12 regions of the world, equilibrium strategies are the outcome of a dynamic game through which inefficiency costs induced by global strategic interactions can be assessed.

The paper’s results emphasise that the drastic change in the energy mix that will be necessary to control climate change, the huge investments in existing and new technologies implied, and the crucial role of breakthrough technological innovation. The following are the implications for developing country policy-makers:

• Stabilising the CO2 concentrations at 550 or 450 ppm is possible but achieving this goal requires radical changes in the energy sector and large investments in R&D specially in the transport sector
• R&D policies should complement the climate stabilisation ones.