Climate Policy And Technological Change

Washington, DC- With Russian ratification of the Kyoto Protocol now likely, the development and deployment of technologies to reduce global emissions is more critical than ever. While technological change occurs naturally as companies compete in the marketplace, climate policies can spur additional or “induced” technological change (ITC). Induced Technological Change and Climate Policy, by Larry Goulder of Stanford University, explores the use of ITC in climate policy, using state-of-the-art economic modeling and analysis. Goulder finds that models that include ITC produce lower cost estimates for GHG reductions, and that costs are lowest when climate policies are announced in advance. Furthermore, he finds that to reduce greenhouse gas emissions most cost-effectively, both policies that boost technological innovation, such as R&D funding, and policies that limit emissions, such as a GHG cap-and-trade program, are required.

“This research shows us that the costs of meeting a long-term CO 2 emissions target using both R&D subsidies and a carbon tax (or cap-and-trade) is roughly 10 times less than with R&D subsidies alone,” said Eileen Claussen, President of the Pew Center on Global Climate Change.

A crucial point is that although studies show different implications of ITC on the overall timing of climate policy, all find that some abatement must begin now in order to jumpstart the critical process of technological change. “ Timing is crucial for dealing with this issue in a cost-effective manner; the longer we wait, the more expensive it will be,” said the Pew Center's Claussen.

Pew is no longer active in this line of work, but for more information, visit the Center for Climate and Energy Solutions site.