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

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  • Ye, Fanglin
  • Paulson, Nicholas
  • Khanna, Madhu

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.

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  • Ye, Fanglin & Paulson, Nicholas & Khanna, Madhu, 2022. "Are renewable energy policies effective to promote technological change? The role of induced technological risk," Journal of Environmental Economics and Management, Elsevier, vol. 114(C).
    • Handle: RePEc:eee:jeeman:v:114:y:2022:i:c:s0095069622000419
    DOI: 10.1016/j.jeem.2022.102665
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    More about this item

    Keywords

    Induced technological risk; Renewable energy investment; Real options; Prices vs. quantities;
    All these keywords.

    JEL classification:

    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing

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