Decarbonization with Heterogeneous Knowledge Creation and Technology Tipping

Abstract

The paper develops an endogenous growth model to characterize decarbonization with technology tipping and its support through effective public policies. Knowledge varies across economic sectors and is accumulated through innovations at the aggregate level and through learning from the conversion of polluting and clean energy sources. Consumption development throughout decarbonization is derived in a closed-form solution. Energy technology undergoes a tipping point at a critical threshold, which is influenced by knowledge diffusion and policy interventions. Carbon taxes and subsidies for clean energy infrastructure have a symmetrical impact on technology tipping. Timely decarbonization by mid-century can only be achieved if either stringent policies are consistently implemented or policies are significantly aligned with progress in clean technologies