Facebook LinkedIn Twitter

IAEE Members and subscribers to The Energy Journal: Please log in to access the full text article or receive discounted pricing for this article.

Diffusion of Climate Technologies in the Presence of Commitment Problems

Publicly announced greenhouse gas (GHG) mitigation targets and emissions pricing strategies by individual governments may suffer from inherent commitment problems. When emission prices are perceived as short-lived, socially cost-effective upfront investment in climate technologies may be hampered. This paper compares the social abatement cost of a uniform GHG pricing system with two policy options for overcoming such regulatory uncertainty: One combines the emissions pricing with a state guarantee scheme whereby the regulatory risk is borne by the government and one combines the system with subsidies for upfront climate technology investments. A technology-rich computable general equilibrium model is applied that accounts for abatement both within and beyond existing technologies. Our findings suggest a tripling of abatement costs if domestic climate policies fail to stimulate investment in new technological solutions. Since the cost of funding investment subsidies is found to be small, the subsidy scheme performs almost as well as the guarantee scheme.

Download Executive Summary Purchase ( $25 )

Energy Specializations: Renewables – Other ; Energy and the Environment – Policy and Regulation; Energy and the Environment – R&D and Emerging Technologies; Energy and the Environment – Environmental Market Design; Energy and the Environment – Carbon Capture and Sequestration; Energy and the Environment – Climate Change and Greenhouse Gases

JEL Codes:
Q29 - Renewable Resources and Conservation: Other
E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
O32 - Management of Technological Innovation and R&D
Q56 - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth
Q53 - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
Q54 - Climate; Natural Disasters and Their Management; Global Warming

Keywords: Abatement costs, Climate technologies, Credible commitment, Computable general equilibrium model, Hybrid modelling, Technological change, Technological diffusion

DOI: 10.5547/01956574.37.2.tfae

References: Reference information is available for this article. Join IAEE, log in, or purchase the article to view reference data.

Published in Volume 37, Number 2 of The Quarterly Journal of the IAEE's Energy Economics Education Foundation.