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Demand Subsidies Versus R&D: Comparing the Uncertain Impacts of Policy on a Pre-commercial Low-carbon Energy Technology
Author(s): Gregory F. Nemet, Erin Baker

The Quarterly Journal of the IAEE's Energy Economics Education Foundation
Volume 30, Number 4

Abstract: We combine an expert elicitation and a bottom-up manufacturing cost model to compare the effects of R&D and demand subsidies. We model their effects on the future costs of a low-carbon energy technology that is not currently commercially available, purely organic photovoltaics (PV). We find that: (1) successful R&D enables PV to achieve a cost target of 4c/kWh, (2) the cost of PV does not reach the target when only subsidies, and not R&D, are implemented, and (3) production-related effects on technological advance´┐Żlearning-by-doing and economies of scale´┐Żare not as critical to the long-term potential for cost reduction in organic PV than is the investment in and success of R&D. These results are insensitive to two levels of policy intensity, the level of a carbon price, the availability of storage technology, and uncertainty in the main parameters used in the model. However, a case can still be made for subsidies: comparisons of stochastic dominance show that subsidies provide a hedge against failure in the R&D program.
Energy Specializations: Renewables - Solar, Energy and the Environment - Climate Change and Greenhouse Gases, Energy and the Environment - Policy and Regulation, Renewables - Policy and Regulation,

Keywords: Photovoltaics (PV), R&D, subsidies, climate change, technology policy, solar energy,
Pages:49-80
DOI: 10.5547/ISSN0195-6574-EJ-Vol30-No4-2
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