Working Paper: NBER ID: w31622
Authors: Sarah C. Armitage; Noel Bakhtian; Adam B. Jaffe
Abstract: Moving beyond the combination of adoption subsidies, standards, and (albeit limited) attempts at carbon pricing that largely characterized US climate policy over the past decade, recent climate-related legislation has transformed not only the scale of US climate activities but also the policy mechanisms adopted. Newly scaled policy instruments—including demonstration projects, loan guarantees, green banks, and regional technology hubs—are motivated not only by unpriced carbon externalities but also by innovation market failures. This paper maps the economics literature on innovation market failures and other frictions to the stated goals of these policy instruments, with the goal of focusing discussions about how to implement these policies as effectively as possible. The paper also discusses how program evaluation can help to illuminate which market failures are most relevant in a particular context and which policy instruments are most targeted to them.
Keywords: innovation; climate; market failure; demonstration projects; loan guarantees; green banks; regional technology hubs
JEL Codes: O32; O38; Q54; Q55; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| climate policy instruments (Q58) | innovation market failures (O35) |
| demonstration projects and loan guarantees (H81) | unpriced carbon externalities (D62) |
| demonstration projects and loan guarantees (H81) | financial frictions (G19) |
| demonstration projects and loan guarantees (H81) | coordination failures (P11) |
| innovation market failures (O35) | slow deployment of new technologies (O33) |
| addressing innovation market failures (O35) | efficient allocation of resources (D61) |
| addressing innovation market failures (O35) | successful technology deployment (O33) |