Addressing climate change without damaging the economy will require substantial improvements to energy technologies. These improvements depend on investments in, and the production of, new knowledge -- both in the laboratory and in commercial use. Because knowledge, due to its special nature, is notoriously difficult for private firms to control and profit from exclusively, it is argued that government support is required to assure that opportunities are not squandered. The literature is clear that the presence of multiple market failures and multiple technical options means that good government policy needs to have a portfolio of policies addressing a portfolio of technologies. However, there are many possible diversified portfolios. This research applies science to science and innovation policy in order to estimate the consequences of combinations of technology policy instruments on the climate and on the economy.
Intellectual Merit: This project aims to provide a framework for designing a portfolio of technology policies to address climate change. The researchers model the effects of combinations of policy instruments on a portfolio of technologies, when both the outcomes of the technology policies and the effects of climate change are uncertain. The project evaluates combinations of three policy instruments: government funded R&D; subsidies for demand; and carbon prices. It focuses on two important technologies: solar PV and Carbon Capture and Storage (CCS), while developing a framework amenable to the consideration of a larger set of technologies. Some of the key questions the project addresses are:
- What factors are most important in choosing the best the mix of R&D and Subsidies? How does this mix change with increasing uncertainty in climate damages? - What drives the optimal mix of a two-technology portfolio? - To what extent do R&D and subsidies affect the optimal level of emissions abatement? - How large is the hedging value that subsidies provide?
The researchers collect and use expert elicitations to estimate the probability of R&D investment producing technical improvements in CCS. Simultaneously and iteratively, they develop a bottom-up cost model to estimate the cost reductions expected from both economies of scale and learning-by-doing as deployment of CCS technology expands. They implement this model?along with an earlier model of solar PV?into an Integrated Assessment Model, allowing for the optimization of portfolios of policy instruments designed to reduce the cost of climate change mitigation. This configuration allows cost benefit optimization of policy choices under varying probability distributions over damages and technical outcomes.
Broader Impact: Improved models that help improve the allocation of public funds could have an important fiscal impact. In addition, the research will inform the development of classes and train students in public policy model building.
How should public resources be allocated when investing in alternate energy technology? Should government concentrate their investments in the most promising technology or in a portfolio of technologies with uncertain futures, knowing that some may prove inferior options later on? By formally modeling the uncertainties around Carbon Capture and Storage (CCS), potentially one of the most important technologies to combat climate change, Greg Nemet and Erin Baker provide insight into these questions. They developed a cost model to characterize the future costs of seven types of CCS technologies applied to coal power plants. They found that likely future costs span a wide range and attributed this finding to uncertainty in future capital costs, interest rates and energy penalty. The researchers also found that increasing public research and development funding leads to consistent, but modest, decreases in the cost of capture across all technologies. They determined that the three most mature CCS technologies (pre-combustion, oxyfuel and post-combustion absorption) are most likely to set the minimum cost of CCS in 2025. But they also discovered that supporting research on all seven CCS technologies doubles the chances of achieving the targeted cost of reduced emissions, compared to investing only in the three technologies with the lowest expected costs. Digging deeper, they found that carbon policy (such as a carbon tax or cap and trade) has larger effects on costs and abatement than do public R&D and subsidies for demand. The range of uncertainty that they observed across all results is driven by 4 key holes in our collective knowledge: the size of capital costs, the cost and effectiveness of demonstration plants, the speed at which the industry can grow, and how much knowledge about one technology can help lead to improvements in other technologies. More information about these aspects would be most useful to inform technology policy addressing climate change. An important aspect of crafting national energy policy is to make sure that the public understands the issues and buys in to the ultimate policy. Particularly important is reaching out to diverse groups, to make sure that all voices can be heard. To support this, an undergraduate student, Mo Kaikai, worked with Baker to develop a clean energy curriculum aimed at urban teens. The curriculum, which included a hands-on experiment with homemade wind turbines, as well as discussions of the broader energy system, was implemented in the Upward Bound program at UMass Amherst. The high school students in the program were engaged, and participated in a poster presentation at the end of the program. In summary, the results of this research will help governments and private industry effectively and efficiently analyze and evaluate the potential for CCS technologies; and to put it in the broader context of technology policy in an uncertain world.
