Technology - An Introduction to Climate Change Legislation

Technology

An adequate response to the risks posed by climate change will require the development and deployment of new low- and zero-carbon technologies. Policies that impose a price on greenhouse gas emissions - such as a carbon tax or cap-and-trade program - would induce technological change and help move these new technologies into the marketplace. The private incentives to invest in R&D, even in the presence of an emissions mitigation policy, will still be weak because of the "public good" nature of new ideas: creating knowledge through R&D generates benefits that the innovator cannot fully appropriate.

There may also be a lack of confidence - particularly in the initial years of a new program - in the long-term government commitment to emissions pricing. Under these circumstances, government support for basic science can yield quite substantial returns on the investment, especially after accounting for positive spillovers of knowledge creation and pollution mitigation. The public policy rationale for commercial and near-commercial technologies - such as through pilot and demonstration projects - is much weaker. Private firms (or consortiums of firms) have substantial incentives to invest in demonstration projects, and the prospect of public funding may crowd out private investment. A climate-oriented R&D policy can address these market failures and will complement mitigation policy, a task more easily achieved through research and development rather than demonstration and deployment.