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Modelling innovation and the macroeconomics of low-carbon transitions: theory, perspectives and practical use

Scrieciu, S; Mercure, J-F; Knobloch, F; Pollitt, H; Paroussos, L; Lewney, R; (2019) Modelling innovation and the macroeconomics of low-carbon transitions: theory, perspectives and practical use. Climate Policy , 19 (8) pp. 1019-1037. 10.1080/14693062.2019.1617665. Green open access

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Abstract

Energy and climate policies may have significant economy-wide impacts, which are regularly assessed based on quantitative energy-environment-economy models. These tend to vary in their conclusions on the scale and direction of the likely macroeconomic impacts of a low-carbon transition. This paper traces the characteristic discrepancies in models’ outcomes to their origins in different macro-economic theories, most importantly their treatment of technological innovation and finance. We comprehensively analyse the relevant branches of macro-innovation theory and group them into two classes: ‘Equilibrium’ and ‘Non-equilibrium’. While both approaches are rigorous and self-consistent, they frequently yield opposite conclusions for the economic impacts of low-carbon policies. We show that model outcomes are mainly determined by their representations of monetary and finance dimensions, and their interactions with investment, innovation and technological change. Improving these in all modelling approaches is crucial for strengthening the evidence base for policy making and gaining a more consistent picture of the macroeconomic impacts of achieving emissions reductions objectives. The paper contributes towards the ongoing effort of enhancing the transparency and understanding of sophisticated model mechanisms applied to energy and climate policy analysis. It helps tackle the overall ‘black box’ critique, much-cited in policy circles and elsewhere.

Type: Article
Title: Modelling innovation and the macroeconomics of low-carbon transitions: theory, perspectives and practical use
Open access status: An open access version is available from UCL Discovery
DOI: 10.1080/14693062.2019.1617665
Publisher version: https://doi.org/10.1080/14693062.2019.1617665
Language: English
Additional information: © 2019 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives License (http://creativecommons.org/ licenses/by-nc-nd/4.0/).
Keywords: Economics of innovation, innovation policy, finance of innovation, economic modelling, climate policy, finance of low-carbon investment
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL BEAMS
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment
UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of the Built Environment > Bartlett School Env, Energy and Resources
URI: https://discovery.ucl.ac.uk/id/eprint/10076276
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