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Technology shocks, directed technical progress and climate change

Published online by Cambridge University Press:  14 May 2025

André Grimaud  and
Luc Rouge Open the ORCID record for Luc Rouge [Opens in a new window]
André Grimaud
Affiliation:
Toulouse School of Economics, University of Toulouse Capitole, Toulouse, France
Luc Rouge*
Affiliation:
TBS Business School, Toulouse, France
*
Corresponding author: Luc Rouge; Email: l.rouge@tbs-education.fr
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Abstract

Technical progress is considered a key element in the fight against climate change. It may take the form of technological breakthroughs, that is, shocks that induce significant leaps in the stock of knowledge. We use an endogenous growth framework with directed technical change to analyze the climate impact of such shocks. Two production subsectors coexist: one subsector is fossil-based, using a non-renewable resource, and yields carbon emissions; the other subsector uses a clean, renewable resource. At a given date, the economy benefits from an exogenous technology shock. We fully characterize the general equilibrium and analyze how the shock modifies the economy’s trajectory. The overall effect on carbon emissions basically depends on the substitutability between the production subsectors, the initial state of the economy, and the nature and size of the shock. We notably show that green technology shocks induce higher short-term carbon emissions when the two subsectors are gross complements, but also in numerous cases when they are gross substitutes.

Keywords

Directed technical changeendogenous growthtechnology shocksclimate changeO33O44Q32Q54Q55

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Type
Articles
Information
Macroeconomic Dynamics , Volume 29 , 2025 , e98
Copyright
© The Author(s), 2025. Published by Cambridge University Press

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