Korean Energy Economic Review ISSN:1599-7057(Print) 에너지경제연구

In order to investigate the significance of induced technology for the attractiveness of emission abatement policies, this study develop the multi-sectoral dynamic CGE model by incorporating the endogenous growth model. Furthermore, technological progress is affected by not only the economical factors but also the political and institutional system that cannot be captured in this model. This study also considers such uncertainty in the technological progress as technology shock. This paper shows that the presence of ITC(Induced Technological Changes) implies lower costs of achieving a given abatement target in terms of the reduction cost per ton of carbon and GDP losses. The presence of ITC reduces the GDP losses by 0.9%p～1.5%p and mitigate the reduction cost by 2%～3% compared with the absence of the ITC. The reduction cost is highly sensitive to the uncertainty in technological progress. The technology shock leads the reduction cost to widely vary, in terms of standard deviation, 3.96(20% of carbon reduction from BaU level) ～6.04(40% of carbon reduction from BaU level). This result suggests that the possibility of policy misleading rises as the carbon abatement target goes up.