Directed technical change in clean and dirty technologies: Is it possible to redirect R&D in a multi-region world?

In order to stabilize the climate, environmentally friendly energy sources must be developed and improved. The theory of technological change and endogenous growth are crucial when it comes to dealing with the climate issue. If the improvements in technology can be directed to the clean energy sources, it might be possible to solve the climate problem without sacrificing a considerable amount of long-run growth. This thesis builds on the model by Acemoglu et al (2012), which is an endogenous growth model with directed technical change. It is a two-sector model with clean and dirty technologies that are improved by R&D. The model involves a social planner that can use a carbon tax and/or a research subsidy in order to conduct the optimal policy. I have extended the model into a two regions framework, where only one of the regions has environmental concerns. I have investigated by the use of numerical analysis if it is possible to redirect R&D in a multi-region world. This thesis concludes that it is possible to redirect R&D by using a subsidy if the environmental concerned region can target more than 50% of the scientists. It will also be possible by using only a carbon tax if the technology gap between the two sectors is not too large. These results suggest that if the majority of the world can agree upon a climate agreement, it will be sufficient to redirect the technological change towards the environmentally friendly energy sources, which again can solve the climate issue