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Diffusion of climate technologies in the presence of commitment problems

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Publicly announced GHG mitigation targets and emissions pricing strategies by individual governments may suffer from inherent commitment problems. When emission prices are perceived as short-lived, socially cost-effective upfront investment in climate technologies may be hampered. This paper compares the social abatement cost of a uniform GHG pricing system with two policy options for overcoming such regulatory uncertainty: one with a state guarantee scheme whereby the regulatory risk is borne by the government and one which combines emissions pricing with subsidies for upfront climate technology investments. A technology-rich CGE model is applied that accounts for abatement both within and beyond existing technologies. Our findings suggest a tripling of abatement costs if domestic climate policies fail to stimulate investment in new technological solutions. Since the cost of funding investment subsidies is found to be small, the subsidy scheme performs almost as well as the guarantee scheme.

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  • Taran Fæhn & Elisabeth Thuestad Isaksen, 2014. "Diffusion of climate technologies in the presence of commitment problems," Discussion Papers 768, Statistics Norway, Research Department.
    • Handle: RePEc:ssb:dispap:768
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    1. Teye, Evans Sackey & Quarshie, Philip Tetteh, 2021. "Impact of agriculture finance in modern technologies adoption for enhanced productivity and rural household economic wellbeing in Ghana: A case study of rice farmers in Shai-Osudoku District," SocArXiv 9ue2k, Center for Open Science.
    2. Taran Fæhn, Cathrine Hagem, Lars Lindholt, Ståle Mæland, and Knut Einar Rosendahl, 2017. "Climate policies in a fossil fuel producing country demand versus supply side policies," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1).

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    More about this item

    Keywords

    Abatement costs; Climate technologies; Credible commitment; Computable general equilibrium model; Technological change; Technological diffusion; Hybrid modelling;
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