Are renewable energy policies effective to promote technological change? The role of induced technological risk

Fanglin Ye, Nicholas Paulson and Madhu Khanna

Journal of Environmental Economics and Management, 2022, vol. 114, issue C

Abstract: This study shows that renewable energy policies have an important side effect of inducing technological risk that makes firms' already-adopted technologies become uncompetitive more quickly. This induced risk irrevocably reduces firms' incentives to develop and adopt new technologies, thus undermining policy effectiveness to promote technological change. We find that the quantity-based renewable energy standard is more effective than the R&D or price subsidy to maintain firms' innovation and investment incentives under the induced-risk effect. This effectiveness advantage further influences policy choices between the price-based and quantity-based policy instruments, and provides a bias in favor of a quantity instrument in Weitzman's criterion.

Keywords: Induced technological risk; Renewable energy investment; Real options; Prices vs. quantities (search for similar items in EconPapers)
JEL-codes: D25 Q42 Q48 Q55 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jeeman:v:114:y:2022:i:c:s0095069622000419

DOI: 10.1016/j.jeem.2022.102665

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