Issues in modeling induced technological change in energy, environmental, and climate policy

This paper addresses the objective of including Induced Technological Change (ITC) in research and policy models of energy, environment, and climate change. Theoretical foundations, fundamentals, and current methodologies for ITC models are reviewed. In addition, limitations and possible extensions to ITC models are explored. Current approaches to energy-environmental modeling that neglect technological characteristics such as heterogeneity, uncertainty, and path-dependence are likely to underestimate both the impact and the lags in the effectiveness of policy options.