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Systems Innovation, Inertia and Pliability: A mathematical exploration with implications for climate change abatement

Author

Listed:
  • Michael Grubb

    (Energy and Climate Change, University College London)

  • Jean-Francois Mercure

    (Environmental Science department, Radboud University, Nijmegen)

  • Pablo Salas

    (University of Cambridge, CEENRG/Department of Land Economy)

  • Rutger-Jan Lange

    (Erasmus School of Economics, Erasmus University Rotterdam)

  • Ida Sognnaes

    (University of Cambridge, CEENRG/Department of Land Economy)

Abstract
This paper develops a stylised mathematical interpretation of innovation and inertia in economic systems, characteristics which feature in economics literature traceable back at least to Schumpeter and other economic theorists of innovation, as well as economic historians. Such characteristics are particularly important in energy systems and their potential response to climate change, where it is important to distinguish operational/fuel substitution from investment because the latter necessarily embodies both inertia and innovation, in systems as well as technologies. We argue that integrated assessments of climate abatement need to focus on investment, including the associated characteristics of both learning and inertia, and derive in detail the mathematical basis for incorporating these factors through marginal investment cost curves. From this we also introduce the concept of ‘pliability’ as an expression of the ratio between costs which are significant but transitional (including learning investments, infrastructure and overcoming inertia), as compared to the enduring costs implied by purely exogenous technology assumptions. We then incorporate these features in a global model of optimal climate mitigation and show that they can generate a very different profile and pattern of results from traditional ‘integrated assessment’ models, pinpointing the key sensitivities. We conclude that alongside all the attention devoted to evaluating climate change impacts and technology scenarios, far more effort should be devoted to understanding the structural characteristics of how the global energy system may respond to climate change mitigation.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Michael Grubb & Jean-Francois Mercure & Pablo Salas & Rutger-Jan Lange & Ida Sognnaes, 2018. "Systems Innovation, Inertia and Pliability: A mathematical exploration with implications for climate change abatement," Working Papers EPRG 1808, Energy Policy Research Group, Cambridge Judge Business School, University of Cambridge.
    • Handle: RePEc:enp:wpaper:eprg1808
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    Cited by:

    1. Michael Grubb & Rutger-Jan Lange & Nicolas Cerkez & Pablo Salas & Ida Sognnaes, 2020. "Interactions of time and technology as critical determinants of optimal climate change policy," Tinbergen Institute Discussion Papers 20-083/VI, Tinbergen Institute, revised 29 Dec 2022.

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    More about this item

    Keywords

    Innovation; path dependence; inertia; learning by doing; climate change abatement; endogenous technological change; energy systems;
    All these keywords.

    JEL classification:

    • B52 - Schools of Economic Thought and Methodology - - Current Heterodox Approaches - - - Historical; Institutional; Evolutionary; Modern Monetary Theory;
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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