Optimal international technology cooperation for the low-carbon transformation

Abstract

ABSTRACTResearch on low-carbon transformation pathways has focused on carbon pricing as a means for climate stabilization. By contrast, technology policies remain the more prominent national climate policy instruments today: renewable energy subsidies amount to more than US$100 billion per year globally – more than twice the value of priced carbon in 2016. Given technology spillovers and global learning effects, it remains unclear how technology policies can be coordinated internationally as part of climate stabilization policy. Our study is the first to derive optimal technology and climate policy for the 2C target using an energy-economy-climate model. We show an economic rationale to include an international technology protocol alongside carbon pricing: Cumulative low-carbon subsidies of more than US$1 trillion from 2020 until the end of the century mainly support solar power as well as electric- and hydrogen-powered passenger vehicles. Higher carbon pricing could replace subsidies at very low cost, but mitigation cost increases from delayed carbon pricing can be reduced only somewhat by stepping up subsidies. Our study suggests that existing low-carbon subsidies must be complemented by full carbon pricing to achieve 2C cost-efficiently: Alongside the optimal carbon price, low-carbon subsidies should amount to no more than ∼6% of the value of priced carbon.Key policy insightsInternational spillovers in low-carbon technologies may slow their deployment.We derive optimal technology and climate policy for 2C in an energy-economy-climate model.Subsidies of more than US$1 trillion support mainly solar and advanced car technologies.Replacing all subsidies by carbon pricing barely increases mitigation costs.