Learning or Lock-in: Optimal Technology Policies to Support Mitigation

Matthias Kalkuhl, Ottmar Edenhofer and Kai Lessmann

No 3422, CESifo Working Paper Series from CESifo

Abstract: We investigate conditions that aggravate market failures in energy innovations, and suggest optimal policy instruments to address them. Using an intertemporal general equilibrium model we show that “small” market imperfections may trigger a several decades lasting dominance of an incumbent energy technology over a dynamically more efficient competitor, given that the technologies are very good substitutes. Such a “lock-in” into an inferior technology causes significantly higher welfare losses than market failure alone, notably under ambitious mitigation targets. More than other innovative industries, energy markets are prone to these lock-ins because electricity from different technologies is an almost perfect substitute. To guide government intervention, we compare welfare-maximizing technology policies in addition to carbon pricing with regard to their efficiency, effectivity, and robustness. Technology quotas and feed-in-tariffs turn out to be only insignificantly less efficient than first-best subsidies and seem to be more robust against small perturbations.

Keywords: renewable energy subsidy; renewable portfolio standard; feed-in-tariffs; carbon pricing (search for similar items in EconPapers)
JEL-codes: O38 Q40 Q54 Q55 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Journal Article: Learning or lock-in: Optimal technology policies to support mitigation (2012)
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