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Designing a friendly space for technological change to slow global warming

  • Nordhaus, William

What is the best strategy to encourage research and development on new energy technologies in a market economy? What steps can ensure a rapid and efficient transition to an economy that has much lower net carbon emissions? This paper shows that, under limited conditions, a necessary and sufficient condition for an appropriate innovational environment is a universal, credible, and durable price on carbon emissions. Such a price would balance the marginal damages from carbon emissions against the marginal costs of abating emissions; it should not contain a correction factor for inducing technological change. This result, which the paper calls "price fundamentalism," applies principally to the market-oriented part of research and innovation. It is subject to qualifications regarding the efficacy of intellectual property protection and the proper level of carbon prices, and it applies primarily to market sectors. The role of appropriate prices on emissions is a central part of public policies to encourage technologies to combat global warming.

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Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 33 (2011)
Issue (Month): 4 (July)
Pages: 665-673

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Handle: RePEc:eee:eneeco:v:33:y:2011:i:4:p:665-673
Contact details of provider: Web page: http://www.elsevier.com/locate/eneco

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  1. Richard R. Nelson, 1959. "The Simple Economics of Basic Scientific Research," Journal of Political Economy, University of Chicago Press, vol. 67, pages 297.
  2. Stanley M. Besen & Leo J. Raskind, 1991. "An Introduction to the Law and Economics of Intellectual Property," Journal of Economic Perspectives, American Economic Association, vol. 5(1), pages 3-27, Winter.
  3. Kira R. Fabrizio, 2007. "University patenting and the pace of industrial innovation," Industrial and Corporate Change, Oxford University Press, vol. 16(4), pages 505-534, August.
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