Lessons for Climate Stabilizing Innovation from Experience with Cap-and-Trade Programs

October 19, 2009 - 12:00pm

There are serious technological obstacles to achieving climate stabilization by 2050, and climate policy will need to be designed with the appropriate incentives for innovation to overcome these obstacles. The most dominant climate policy instrument today is emissions trading, or cap-and-trade programs (CTPs). This paper synthesizes existing research and presents new data on technology adoption and invention under the two most successful CTPs that share with climate CTPs a focus on reducing emissions from fossil fuel combustion and have had long-enough operations for such an assessment (climate CTPs are too recent for a similar treatment). Emissions sources successfully met the caps under both CTPs at allowance price levels that were generally lower-than-expected when the programs were initiated. They did so by employing available technologies that allowed them to balance reducing the output of higher polluting facilities with reducing emissions intensity. The "abatement channels" thus employed involved a smaller role for most of the major technology strategies developed previously under direct regulatory policy in the U.S. and abroad than expected at the outset of the programs. Meanwhile, patenting activity declined during trading across these technology strategies; although it cannot easily be proven due to data limitations, this would appear to be in line with low allowance prices - which are often seen in emissions trading - and the adoption behavior predicted by economic theory. The paper concludes with a discussion of the role of invention in climate stabilization and factors to consider when designing a climate CTP and possible complementary policies. For more information about this seminar, please contact: JoAnne Lambert 510.486.4835, or send e-mail to JMLambert[at]lbl.gov

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