Abstract

Transition to green economy is urgently needed in order to reach the climate targets by the end of this century. In this paper we investigate what it takes for such transition to happen and what is the socially optimal pathway from brown to green economy. We identify endogenous technological change as a central driver of such transition and modify a well-known integrated assessment model (DICE) to include learning-by-doing effect, in parallel with R&D and education investment. Our results indicate that endogenous technological change can rise abatement rate substantially by bringing down the mitigation cost through learning-by-doing. We show that the green transition requires substantial investment in renewable energy infrastructure and human capital development which in turn reduces greenhouse gas emissions and constrains warming by about 1 degree C lower than the original DICE results.