Research Institute of Economy, Trade and Industry (RIETI)
RIETI BBL Seminar
Handout
“Technology Policy and Climate Change”
March 18, 2014
Speaker: Prof. Adam B. Jaffe
http://www.rieti.go.jp/jp/index.html
Technology Policy and Climate Change Adam B. Jaffe Director and Senior Fellow Motu Economic and Public Policy Research Wellington New Zealand REITI 18 March 2014 Overview •
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Carbon policy is necessary but not sufficient Technology market failures Current state of public support for energy R&D Lessons from other technologies Specula@ve conclusions Research needs 2
Mo@va@on •  Regardless of outcome of current debates about the @ming, GHG emissions need to be stabilized and then reduced •  Assuming that we want world GDP to con@nue to grow, this means significant reduc@ons in the world GHG/GDP ra@o at some point this century •  Certainly at least 50%, probably more, by 2050 How hard will this be? 3
Historical Oil Intensity of the World Economy
120.00
1.2
price of oil (left scale)
0.8
Cumulative decrease of
40%, 1970-2009
60.00
0.6
40.00
0.4
20.00
Cumulative increase of
620%, 1970-2009
0.00
0.2
0
70
71
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00
01
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09
Constant 2005 $ Per Barrel
80.00
1
Barrels per Thousand 2005 $
oil intensity of w orld gdp (right scale)
100.00
Year
4
Do prices spur innova@on? •  Old literature on induced innova@on (Hicks, 1932) •  Theory suggests that high/rising carbon price should direct resources towards carbon-­‐saving innova@on •  Some evidence on changing menus (Newell, Jaffe and Stavins, 1999) •  No natural experiment confirming innova@on impacts of the magnitude sought here 5
Cigarette Taxes and Patents over Time
Introduction of
Nicotine Gum
25
1.4
Tobacco
Master
Settlement
1.2
20
2009 Dollars/Pack
1
15
0.8
Successful Patent Applications
10
0.6
Average Cigarette Tax
0.4
5
0.2
20
03
20
01
19
99
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97
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95
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93
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91
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89
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85
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83
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81
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0
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53
0
19
51
Patents per Year
Nicotine
Patch
Year
From Werfel and Jaffe, 2013
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What does this mean for climate policy? •  Even significant increase in the effec@ve price of carbon is unlikely, on its own, to yield needed emissions reduc@ons. •  A qualita've socio-­‐economic transforma@on will be required—comparable to IT/communica@ons revolu@on •  Ge`ng environmental policy “right” is surely necessary, it is unlikely to be sufficient •  Carbon base will be larger for a long @me, so private incen@ves will con@nue to favor carbon innova@on (Acemoglu, et al 2009) 7
Technology Market Failures •  Imperfect appropriability of knowledge –  Research spillovers (Jaffe, 1998) –  Learning curve spillovers (Thompson, 2010) –  User-­‐driven technology improvement (von Hippel, 2010) •  Asymmetric informa@on affec@ng capital market (Hall and Lerner, 2010) •  Path-­‐dependence and poten@al importance of technology trajectories (Dosi and Nelson, 2010) Important caveat: SR inelas@c supply of specialized human capital 8
Figure Four
IEA Countries Energy R&D
Millions of 2010 PPP Dollars
25000
20000
HYDROGEN AND FUEL CELLS
RENEWABLE
EFFICIENCY
ALL OTHER
FOSSIL
NUCLEAR
15000
10000
5000
0
Year
9
ManhaKan and Apollo projects (Willbanks, 2011) •  Manahhan project: $28B over 2-­‐3 years •  Apollo $140B over 10 years •  Well-­‐defined technical objec@ves with cost no object •  Maybe relevant to subgoals, e.g. carbon capture and storage 10
War on Cancer/NIH budget doubling (Cockburn, et al, 2011) •  Human capital is crucial •  Market demand (3rd party payment, one way or another) •  NIH doubling –  Adjustment costs –  Importance of training in parallel with research expansion 11
Semiconductors, computers and communicaTons (Mowery,2011) •  Design compe@@ons for defense and space uses, with lihle or no regard to cost •  Transi@on to commercial markets later aler cost fell •  Induced R&D through compe@@on for technically specified products (Lichtenberg, 1988) 12
Synfuels (Cohen and Noll, 1991) •
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Government-­‐built demonstra@on plants (contrast to previous case) Not cost-­‐effec@ve Crowded out private investment 13
SpeculaTve Conclusions •  Long-­‐term perspec@ve •  The social rate of return to government technology investments is high. •  Increase in public support should be gradual. •  Building specific human capital is cri@cal. •  Public purchases and/or purchase mandates will be needed. •  Government investment should be designed to be complementary to private investment. •  “Success” will almost surely require technologies not foreseen today. •  Nothing should be “off the table.” 14
Research Needs •  Systema@c program evalua@on. •  Which means: –  Modeling of “but for” world so that incremental impact of policy can be es@mated –  Which means: •  Evalua@on has to be built into program design and funding up front, so that data on ini@al evalua@ons, rejected proposals and baseline ahributes of funded en@@es are collected and maintained. 15
References BP Statistical Review of World Energy 2010, http://www.bp.com/productlanding.do?categoryId=6929&contentId=70
44622 Cohen, Linda R. and Roger G. Noll, 1991. The Technology Pork Barrel, Brookings Press Cockburn, Iain, Scott Stern and Jack Zausner, 2011. “Finding the Endless Frontier: Lessons from the Life Sciences Innovation System for Energy R&D,” in Henderson and Newell, op cit Dosi, Giovanni and Richard R. Nelson, 2010. “Technological change and industrial dynamics as evolutionary processes,” in Hall and Rosenberg, op cit Goolsbee, Austin, 1998. “Does government R&D policy mainly benefit scientists and engineers?”, American Economic Review Goulder, Lawrence H. and Stephen H. Schneider, 1999. "Induced technological change and the attractiveness of CO2 abatement policies," Resource and Energy Economics 21 pp. 211-­‐253. Grimaud, Andre and Gilles Lafforgue, 2008. "Climate change mitigation policies: Are R&D subsidies preferable to a carbon tax?" Revue d Economie Politique 118:6 pp. 915-­‐940 . Griliches, Zvi, 1992. “The search for R&D spillovers,” The Scandinavian Journal of Economics Hall, Bronwyn H. and Josh Lerner, “The financing of R&D and innovation,” in Hall and Rosenberg, op cit Hall, Bronwyn H. and Nathan Rosenberg, eds., Handbook of the Economics of Innovation, North Holland Henderson, Rebecca and Richard Newell, eds., 2011. Accelerating Energy Innovation: Insights from Multiple Sectors, University of Chicago Press Hicks, John R., 1932. The Theory of Wages, London: Macmillan Jaffe, Adam B., 1998. “The Importance of ‘Spillovers’ in the Policy Mission of the Advanced Technology Program,” Journal of Technology Transfer, Summer Jaffe, Adam B., 2002. “Building Programme Evaluation into the Design of Public Research-­‐Support Programmes,” Oxford Review of Economic Policy Lichtenberg, Frank, 1988. “The Private R and D Investment Response to Federal Design and Technical Competitions,” American Economic Review 78:3, pp 550-­‐559. 16
Mansfield, E., J.Rapoport, A.Romeo, S.Wagner and C.Beardsley, 1977. "Social and Private Rates of Return from Industrial Innovations," Quarterly Journal of Economics 77:221-­‐240 Mowery, David C., 2011. “Federal Policy and the Development of Semiconductors, Computer Hardware, and Computer Software: A Policy Model for Climate-­‐
Change R&D?” in Henderson and Newell, op cit Popp, David, 2006. "Comparison of climate policies in the ENTICE-­‐BR model," Energy Journal Special Issue 1, pp. 163-­‐174. Popp, David, Richard Newell and Adam Jaffe, 2010. “Energy, the environment, and technological change,” in Hall and Rosenberg, op cit Thompson, Peter, 2010. “Learning by doing,” in Hall and Rosenberg US Dept of Agriculture, World GDP Historical Data, http://www.ers.usda.gov/Data/Macroeconomics/Data/HistoricalRealGD
PValues.xls U.S. National Science Foundation, “Federal obligations for total research and development, by major agency and performer”, Multiple tables: 1951-­‐ 2002; 2001-­‐2003; 2004-­‐2006; 2007-­‐2009.” Science and Engineering Statistics, Federal Funds for R&D, http://www.nsf.gov/statistics/fedfunds/ Von Hippel, Eric, 2010. “Democratizing innovation: The evolving phenomenon of user innovation,” in Hall and Rosenberg, op cit Werfel, Seth and Adam Jaffe, 2013. “Induced Innovation and Technology Trajectory: Evidence from Smoking Cessation Products” Research Policy Wilbanks, Thomas J, 2011. “Inducing Transformational Energy Technological Change”, Energy Economics 33:4 17