Policies for Funding a Response to Climate Change

This paper asserts that a significant increase in public funding for climate change research and development (R&D) is needed in the United States. While additional public R&D funding alone is unlikely to provide a sufficient policy response to climate change, it is a critical policy component in an effective long-run strategy. Different possibilities for generating additional public revenues for R&D funding are considered. The analysis demonstrates that quite modest taxes on carbon emissions or gasoline could fund a significant increase in public R&D funding for clean energy. As an alternative to tax instruments, the paper also considers a program of voluntary retirement contributions to a clean energy fund. These clean energy retirement accounts (CERAs) would allow individuals to directly contribute to a fund that would be used exclusively to support climate change-related R&D. Specifically, the paper suggests that CERA funds be used to offer low-interest loans to private firms and to form private-public partnerships pursuing the long-term development of clean energy technologies. Loan repayment and the eventual profitability of some partnerships will at least partially fund payments to CERA holders when they retire. Using reasonable assumptions, a simulation analysis demonstrates the financial feasibility of the program and the conditions in which the program would be fully self-funding.