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Carrots and sticks for new technology: Abating greenhouse gas emissions in a heterogeneous and uncertain world

  • Robalino, David
  • Lempert, Robert

Many governments use technology incentives as an important component of their greenhouse gas abatement strategies. These “carrots” are intended to encourage the initial diffusion of new, greenhouse-gas-emissions-reducing technologies, in contrast to carbon taxes and emissions trading which provide a “stick” designed to reduce emissions by increasing the price of high-emitting technologies for all users. Technology incentives appear attractive, but their record in practice is mixed and economic theory suggests that in the absence of market failures, they are inefficient compared to taxes and trading. This study uses an agent-based model of technology diffusion and exploratory modeling, a new technique for decision-making under conditions of extreme uncertainty, to examine the conditions under which technology incentives should be a key building block of robust climate change policies. We find that a combined strategy of carbon taxes and technology incentives, as opposed to carbon taxes alone, is the best approach to greenhouse gas emissions reductions if the social benefits of early adoption sufficiently exceed the private benefits. Such social benefits can occur when economic actors have a wide variety of cost/performance preferences for new technologies and either new technologies have increasing returns to scale or potential adopters can reduce their uncertainty about the performance of new technologies by querying the experience of other adopters. We find that if decision-makers hold even modest expectations that such social benefits are significant or that the impacts of climate change will turn out to be serious then technology incentive programs may be a promising hedge against the threat of climate change.

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File URL: http://mpra.ub.uni-muenchen.de/12002/1/MPRA_paper_12002.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 12002.

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Date of creation: Mar 2000
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Publication status: Published in Integrated Assessment 1.1(2000): pp. 1-19
Handle: RePEc:pra:mprapa:12002
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  1. A. Bassanini & G. Dosi, 1998. "Competing Technologies, International Diffusion and the Rate of Convergence to a Stable Market Structure," Working Papers ir98012, International Institute for Applied Systems Analysis.
  2. Nebojša Nakićenović & Nadejda Victor & Tsuneyuki Morita, 1998. "Emissions Scenarios Database and Review of Scenarios," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 3(2), pages 95-131, December.
  3. Robert N. Stavins, 2007. "Environmental Economics," NBER Working Papers 13574, National Bureau of Economic Research, Inc.
  4. William R. Cline, 1992. "Economics of Global Warming, The," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 39, May.
  5. Jean-Marc Burniaux & John P. Martin & Giuseppe Nicoletti & Joaquim Oliveira Martins, 1992. "GREEN a Multi-Sector, Multi-Region General Equilibrium Model for Quantifying the Costs of Curbing CO2 Emissions: A Technical Manual," OECD Economics Department Working Papers 116, OECD Publishing.
  6. Goulder, Lawrence H. & Mathai, Koshy, 2000. "Optimal CO2 Abatement in the Presence of Induced Technological Change," Journal of Environmental Economics and Management, Elsevier, vol. 39(1), pages 1-38, January.
  7. Andrew Dean & Peter Hoeller, 1992. "Costs of Reducing CO2 Emissions: Evidence from Six Global Models," OECD Economics Department Working Papers 122, OECD Publishing.
  8. Grubler, Arnulf & Nakicenovic, Nebojsa & Victor, David G., 1999. "Dynamics of energy technologies and global change," Energy Policy, Elsevier, vol. 27(5), pages 247-280, May.
  9. Peter Hoeller & Jonathan Coppel, 1992. "Energy Taxation and Price Distortions in Fossil Fuel Markets: Some Implications for Climate Change Policy," OECD Economics Department Working Papers 110, OECD Publishing.
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