Learning or Lock-In: Optimal Technology Policies to Support Mitigation

By Matthias Kalkuhl, Ottmar Edenhofer, K. Lessmann. Social Science Research Network, 2011

205 citations recorded by the source corpus.

We investigate conditions that aggravate market failures in energy innovations, and suggest optimal policy instruments to address them. Using an intertemporal general equilibrium model we show that “small” market imperfections may trigger a several decades lasting dominance of an incumbent energy technology over a dynamically more efficient competitor, given that the technologies are very good substitutes. Such a “lock-in” into an inferior technology causes significantly higher welfare losses than market failure alone, notably under ambitious mitigation targets. More than other innovative industries, energy markets are prone to these lock-ins because electricity from different technologies is an almost perfect substitute. To guide government intervention, we compare welfare-maximizing technology policies in addition to carbon pricing with regard to their efficiency, effectivity, and robustness. Technology quotas and feed-in-tariffs turn out to be only insignificantly less efficient than first-best subsidies and seem to be more robust against small perturbations.

Subfields: Economics and Econometrics, Management Science and Operations Research

View Paper: https://www.semanticscholar.org/paper/9cf0f8d0f1884fcee70580337f891c3edea69a6b

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Citations in the corpus

Up-scaling, formative phases, and learning in the historical diffusion of energy technologies (2012, background): “Such technologies are characteristic of energy supply and conversion, and particularly centralised electricity generation of an almost perfectly substitutable product (Kalkuhl et al., 2012).”
Sustainability-oriented innovation systems – managing the green transformation (2012, unknown): “Similarly, Kalkuhl et al. (2012) make the case for technology-specific quotas in order to ‘learn’ the best technology and avoid lock-in into an inferior technology.”
A retrospective analysis of benefits and impacts of U.S. renewable portfolio standards (2016, result): “…be fully achieved or achieved as cost-effectively as might be desired (Bushnell et al. 2007; Carley 2011; Fischer and Newell 2008; Fell and Linn 2013; Rausch and Karplus 2014), though other research suggests that the pitfalls of such “second-best” policies may not be so great (Kalkuhl et al. 2012).”
Carbon Lock-Out: Advancing Renewable Energy Policy in Europe (2012, background): “The major policy instrument to address learning and knowledge spillovers are schemes to subsidize RES-E generation [13,22,23].”
Renewable Energy Subsidies: Second-Best Policy or Fatal Aberration for Mitigation? (2011, unknown): “Basically, there are two strands of argumentations for implementing renewable energy specific policies: one is based on efficiency grounds, the other relies on pragmatic considerations promoting second-best policies that are politically more feasible (see Bennear and Stavins (2007) for a general…”
Avoiding Carbon Lock-In: Policy Options for Advancing Structural Change (2015, methodology): “It hasmoreover been demonstrated theoretically that – in presence of learning-by-doing externalities – optimal carbon pricing is insufficient to overcome a lock-in into mature low-carbon technologies in the energy market (Kalkuhl et al., 2012).”
Catching two European birds with one renewable stone: Mitigating climate change and Eurozone crisis by an energy transition (2014, background): “sub-optimal investment decisions taken today are perpetuated over a long period of time [16,92,93].”
The ‘2°C capital stock’ for electricity generation: Committed cumulative carbon emissions from the electricity generation sector and the transition to a green economy (2016, background): “[30] show that market imperfections may trigger lasting dominance of one technology over another for several decades, even if that other technology is more efficient.”
Investigating the role of environmental taxes and regulations for renewable energy consumption: evidence from developed economies (2021, unknown): “The existing literature suggests that environmental regulations and environmental technologies have a different impact on the carbon emissions in different countries (Bogusz & Howlett, 2008; Hu et al., 2020; Kalkuhl et al., 2012; Voigt et al., 2014).”