Technology Policy And Climate Change

There is a strong foundation in theoretical and empirical research in economics for the proposition that efficient climate policy must include both carbon-price policy and technology policy. Even the most modest projections of Greenhouse Gas (GHG) reductions needed to moderate climate change imply very large reductions in the carbon-intensity of the world economy, something in excess of a 60% reduction by 2050. This is a greater proportionate reduction than has occurred in the petroleum intensity of world GDP since 1970, despite a six-fold increase in the price of oil. This illustrates how unlikely it is that the needed economic transformation could be brought about by price-based policy instruments alone. There is no good historical analogue to the needed transformation, but the closest parallels all involved major roles for technology policy. Increased public funding of research and training is a necessary but not sufficient component of such policy. Historical experience with technological transformation in other sectors suggests that government support for purchases of low-carbon technologies will be needed. Unfortunately, we do not have good evidence on efficient design of such programs. We need systematic evaluation of different policy instruments designed to accelerate the transformation of basic technologies into large-scale commercial products. We have the "technology" to do this kind of systematic evaluation, but it is not generally used.