Climate Economics by Michael Roos & Franziska M. Hoffart

Author:Michael Roos & Franziska M. Hoffart
Language: eng
Format: epub
ISBN: 9783030484231
Publisher: Springer International Publishing

4.4.2 Conditions for the Successful Adoption of Decarbonisation Technologies

The neoclassical logic of the internalisation of external costs due to a Pigouvian tax says that profit-maximising firms will avoid CO2 emissions if the previously free emissions get a price. One way to avoid CO2 emissions is by investing into less carbon intensive technologies or in technologies that capture CO2 after the process that generated the emissions.

Van den Bergh (2007) explains why this neoclassical view is not sufficient from the perspective of evolutionary economics. Neoclassical economics does not analyse how innovation occurs and what might be factors that promote or hinder the development of new less carbon-intensive technologies. A particular problem is that economy-wide decarbonisation requires not only the adoption of new technologies by individual firms but the transformation of whole systems, such as the energy system, the transportation system or the agricultural production system. The transformation of systems is difficult because of technological complementarities, supply-chains, path dependence and lock-in effects. For example, the transition from gasoline-fuelled cars to electric cars or hydrogen-fuelled ones cannot simply be achieved by a decision of car manufacturers. Customers will not buy such cars as long as there is no infrastructure for fuelling hydrogen cars or recharging electric cars. Furthermore, enough electricity or hydrogen must be produced by someone. These system transitions involve significant coordination problems by a multitude of different actors and are hence impossible to pursue by individual firms, even if they have a monetary incentive to do so. Van den Berg (2007, p. 540) states:From the perspective of path-dependence and lock-in, relevant questions are how regime shifts occur, how they can be stimulated, and how new lock-ins of inefficient or undesired technologies can be avoided. Preventing early lock-in requires a sort of portfolio investment. Un-locking of undesired structures and technologies—from an environmental or some social welfare perspective—cannot be realized by simply ‘correcting prices’, but requires also taking into account increasing returns on demand and supply sides, and (potential) learning curve effects. This has been referred to as transition policy … and it requires additional policies, notably innovation policy.

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