With the growing concern about climate change, integrated impact assessment models (IAMs) have been developed to assess climate mitigation policies. Previous attempts to endogenize technology into regional climate policy models have assumed learning-by-doing or include a single energy sector. This study corrects for the previous limitations in a regional model of the United States and the rest of the world. A backstop technology and knowledge spillovers are added to the model to improve the model’s capacity to simulate a real policy. Each specification is then simulated under no policy (business as usual), an optimal policy, and restrictions of emissions back to 1995 levels. Since the United States has refused to ratify the Kyoto Protocol, it is particularly important to evaluate climate policies specific to the United States, like the Regional Greenhouse Gas Initiative (RGGI). This study also aims to evaluate the effectiveness the RGGI by modeling permit-funded R&D in the energy sector.