Editing Induced innovation (section)

== Induced innovation in climate change ==

A significant application of Hicks's theory can be found in the field of [[climate change]].  The exponential population growth occurred in the last century has drastically increased pressure on natural resources.<ref>{{Cite web|title = Population and technological change: a study of long-term trends {{!}} POPLINE.org|url = http://www.popline.org/node/389788|website = www.popline.org|access-date = 2015-11-05}}</ref> In order to have a sustainable future it is imperative to modify global strategies on climate change and the induced innovation theory can aid to model these policies.<ref>{{cite book|author1=Ian Burton|author2=Elizabeth Malone|author3=Saleemul Huq|url=http://www.cakex.org/sites/default/files/ALL_UNDP.pdf|title=Adaptation Policy Frameworks for Climate Change: Developing Strategies, Policies and Measures|date=15 November 2004|publisher=Cambridge University Press|isbn=978-0-521-61760-4}}</ref>

To calculate the [[human impact on the environment]] economists often use the I=P*A*T equation where “I”, the impact variable, (for example energy consumption) is the product of “P”, the population,  “A” the affluence (often embodied by GDP per capita) and “T” the technology.<ref>{{Cite web|url = http://econweb.ucsd.edu/cee/papers/CarsonPapers/Carson_Jan2010.pdf|title = The Environmental Kuznets Curve: Seeking Empirical Regularity and Theoretical Structure|access-date = 2015-11-01|last = T. Carson|first = Richard}}</ref>

The technical coefficient represents the efficiency of the system in use for particular resource and expresses the average state of technology. The decrease of "T" would indicate a gain in efficiency however “I” could still be growing or remaining stable if the improved technology is not sufficient to compensate the effect of an increase in "P" and "A". Therefore, a reduction in “I” would always mean that pressure on resources has lightened but this might not always be the consequence of using resources more efficiently (reducing T).<ref name=":0">{{Cite journal|url = http://www.treccani.it/export/sites/default/Portale/sito/altre_aree/Tecnologia_e_Scienze_applicate/enciclopedia/italiano_vol_4/011-022_x1.2x_ita.pdf|title = Innovazione tecnologica, scarsità relativa, investimenti|last = Anon|journal = Trecciani|access-date = 2015-11-01}}</ref>

A fundamental issue of climate change is the excess of greenhouse gasses in the atmosphere particularly {{CO2}} as the result of an intensified economic activity.  [[Gross world product|Global GDP]] and {{CO2}} emissions were growing at a corresponding rate in the until the 1970s.<ref name=":0" /> It was then that [[Price of oil|oil prices]] have increased greatly causing people to reduce its consumption.<ref>{{Cite journal |last=Barsky |first=Robert B. |first2=Lutz |last2=Kilian |title=Oil and the Macroeconomy since the 1970s |journal=[[Journal of Economic Perspectives]] |year=2004 |volume=18 |issue=4 |pages=115–134 |doi=10.1257/0895330042632708 |url=http://www.nber.org/papers/w10855.pdf }}</ref>

According to Hicks's theory a change in factor prices will stimulate development of technical innovation to reduce the use of the factor for which the price increased compared to other factors. Following the oil shock significant investments were made in alternative sources of energy, more efficient cars and heating systems to mitigate oil consumption.  As a result, [[Greenhouse-gas emissions|{{CO2}} emissions]] started growing at a slower rate than GDP per capita. Although petrol prices then dropped in the 1980s, {{CO2}} emissions have continued to grow more slowly than GDP.  This is an indication of a complete structural change in technology induced by the need to innovate.<ref name=":0" />