Accelerating the development and diffusion of new energy technologies: Beyond the モvalley of deathヤ

a r t i c l e i n f o There are at least three motivations for government intervention in GHG mitigation: (1) inducing the private sector to reduce GHG emissions directly by setting a price on emissions, (2) increasing the amount of innovative activity in GHG mitigation technology development, and (3) educating the public regarding GHG-reducing investment opportunities, allowing consumers to make better private decisions. This paper discusses the pros and cons of policy instruments that might be used to respond to these motivations and makes recommendations for an appropriate mix of policy instruments over time given both economic and policital/instituional considerations. Recent scientific assessments have heightened concerns about the severity of the climate change impacts from greenhouse gas (GHG) emissions. Despite calls for urgent action, however, international negotiations regarding GHG emissions control policies are moving slowly and may prove totally inadequate over the next several decades. A large number of analyses, including several in this volume, have shown that the development of lower-cost GHG-free and low-GHG-emitting technologies can significantly reduce the cost of GHG mitigation, reducing the economic losses associated with limiting emissions and making it more likely that policymakers will pursue effective GHG control policies. However, there is a great deal of uncertainty about how an appropriate level of innovation can be achieved and how much progress can be made, how fast, and at what cost. One approach to stimulating innovation is to rely primarily on use of externality pricing and the market system to induce profit-oriented firms to develop low-carbon technologies. In that framework, innovation is motivated by taxing GHG emissions under conditions where the industries that produce energy and the industries that produce energy-converting and energy-consuming equipment are approximately competitive, and where the requisite " price signal " is politically feasible. Because such externality prices do not currently exist except for a very small fraction of global emissions, and additionally to address sectors not covered by profit-oriented firms, this paper considers non-market-based innovation policies that can complement these market-based policies. Such supplementary policies will be helpful even if markets are perfectly competitive and the price signal is optimally designed. The power of markets to pull new, cost-competitive products into the economy and to motivate private firms to push technologies that are reasonably close to being competitive through the advanced development and engineering cycles is incredibly strong. Getting the right price signal for GHG emissions …