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

David Robalino and Robert Lempert

MPRA Paper from University Library of Munich, Germany

Abstract: 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.

Keywords: climate change; technology policy; uncertainty; agent-based modeling; exploratory modeling; social interactions (search for similar items in EconPapers)
JEL-codes: C63 D61 D80 H21 Q54 (search for similar items in EconPapers)
Date: 2000-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (25)

Published in Integrated Assessment 1.1(2000): pp. 1-19

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:12002

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