Modelling the redirection of technical change: The pitfalls of incorporeal visions of the economy

- Modelling issues on the role of R&D policies in the energy transition are raised.
- Acemoglu et al. (2012), a typical example, misrepresent key mechanisms.
- The allegation about a low-cost transition is contradicted by their own results.
- Correction of the careless parametrization surprisingly leads to pessimist outcomes.
- Highly stylized modelling at the cost of realism is responsible for this deadlock.

This paper discusses attempts to represent the role of R&D in the transition towards a low carbon economy through models with no meaningful granularity to inform the studied phenomenon. By means of a critical analysis of (Acemoglu et al., 2012), we show that the advantage of these models, their analytical tractability, does not make up for their disadvantages, lack of control over policy implications and questionable numerical results. On the one hand, a comprehensive analysis of the results of Acemoglu et al. (2012) shows that even research subsidies do not pave the way for ambitious climate policies with low transitory costs, thus contradicting their policy message. On the other hand, critical parameters such as the elasticity of substitution between clean and dirty technologies, carbon sinks, or the productivity of researchers are not in accordance with existing scientific knowledge. We show that using more realistic parameters leads to even more pessimistic conclusions and that their model provides no leeway for overcoming them. We suggest that a too highly aggregated model can only describe an incorporeal economy and comes to a deadlock. We propose a more promising route for economic research in order to break this deadlock.