is because their models don't take technological change into consideration, believe it or not.  Most economic models begin with something like the following, "Assume no technological change...".  It's always been that way and probably always will, because neoclassical economics can't model technological change.  Or in order to do so, they'd have to throw in some outside (exogenous) factor, that they obtained outside their theoretical universe.

The Montreal protocol was successful because inexpensive alternatives to ozone-depleting chemicals had already been invented when it went into effect. In fact, an earlier attempt at a global agreement failed several years earlier because the alternative chemicals were not yet available, and the cost of action was viewed by governments as too high. It was not until Dupont demonstrated that it could, at comparable cost, produce HCFCs, a chemical alternative to CFCs that did not deplete the ozone layer, that an international agreement to protect the ozone was achieved.

Advocates of cap-and-trade believe that technology innovation follows regulation, but history shows the reverse is just as often the case.

Advocates of cap-and-trade believe that technology innovation follows regulation, but history shows the reverse is just as often the case.

The threat of regulation is what helped spurred Dupont to look into alternatives to begin with.  As ya said, they had been tryin' to do it some years earlier, and it suddenly had Dupont runnin' scared on might happen if it did pass...and also how they might adapt and corner the market if regulations were imposed.

Andrew-

DuPont created a low-cost substitute that made it easy for governments to enact Montreal. If there had been no low-cost substitute, we can't be sure
what would have happened. Maybe governments would have acted anyway, or maybe they would have done what governments are doing today on climate, signing treaties and doing nothing of significance to reduce emissions.

Governments would like to reduce their emissions, but doing so will not be inexpensive like Montreal. Sure, efficiency and conservation pay for themselves, but there have long been non-financial obstacles to them that won't go away with a price on carbon. Wind is relatively cheap, and could get ramped up, and you might get a single Princeton stabilization wedge. But you need somewhere between 15 and 40 more wedges of that size, and getting them will cost money. This is the reason that we need a massive research,
development and deployment effort to make that effort be as inexpensive as possible so that it happens as quickly as possible while maintaining rather than slowing economic growth, which voters and governments have made perfectly clear that they aren't willing to deliberately slow down with
higher energy prices.

...and msot companies won't invest money in Rand D unless they're fairly sure it'll pay off.

And one good way to make sure it'll pay off is to threaten regulations and restrictions that would make current options or technology unavailable.

lmeisel-

I think we agree that technological innovation is the key to addressing AGW, and that the gov't should be spending much more than it is now on energy R&D.  That said, we seem to disagree on the role of regulation in spurring R&D.  I think there's abundant evidence from the ozone episode as well as many others that regulation spurs R&D --- and thus that we should be putting a price on C emitted to the atmosphere to take advantage of this innovation.  I'd love to see any evidence you have that regulations DO NOT spur innovation.

Thanks!

Andrew -

It's not that I don't think regulation can spur innovation, but I think the kind of innovation it can spur is quite limited, and it's much more effective at bringing nearly cost-competitive technologies - like wind - to market.

Putting a price on carbon will, by design, direct private investment towards the least expensive methods of emissions reduction - not towards more expensive, but equally important, clean energy technologies such as solar energy and carbon capture and storage. Pricing carbon dioxide at $7-12 per ton will drive investments into efficiency and conservation, and will create incentives for energy providers to build gas-fired rather than coal-fired plants. These measures could result in modest emissions reductions.

Reducing carbon emissions at the level we need to prevent catastrophic climate change would require setting a much higher price for C. For today's clean energy alternatives to become cost-competitive with coal, gas, and oil, the price of carbon dioxide would have to be set at exorbitant levels: $37-$74 per ton to make CCS economically viable, and $217 per ton for solar PV cost-competitive.

Even in Europe, with a high price for C, they're still building new coal plants. I think that politically, it's extremely difficult, if not impossible, to get a price for C high enough to spur the kind of big innovations we need, so I think direct government investment should be doing the bulk of the work.

Sounds like we agree that govt RD&D is crucual - is there a certain yearly figure you'd like to see?

Thanks!
Lindsay

There even is a category of regulations called "technology forcing". Generally these regs state that an industry must reduce pollution to set levels by a set period of time. Its done to spur businesses to develop pollution control technology.