Climate Protection Through Technology Policy Increases Approval of Today’s Generations, but Unnecessarily Burdens Future Generations
Economists often argue in support of CO2 emissions pricing to tackle climate change. In the political reality, however, it is common to resort to “green” technology policies (such as subsidisation of renewable energy, energy efficiency standards, regulations on emission limits for cars, etc.). Researchers at ZEW Mannheim and Statistics Norway have come to the conclusion that current generations are less negatively affected by technology policies than they are by direct CO2 pricing. They may therefore tend to support green technology policy through elections and referendums.
“Green technology is relatively capital-intensive. When green technology is forced into the market, capital is implicitly subsidised as compared to direct CO2 pricing. Current generations, especially the older ones, have already built up capital. Unlike future generations, who still have to accumulate capital, the current generations would thus be far less burdened by green technology policy than they would by climate policy that is directly based on carbon pricing,” says Professor Sebastian Rausch, head of the ZEW Research Unit “Environmental and Climate Economics” and professor of economics at Heidelberg University.
Distribution effects between the generations must be taken into account
Future generations, however, will be more negatively affected by technology policy than by direct CO2 prices. Carbon pricing incentivises emissions to be reduced where it is most advantageous to do so. The market-based instrument of carbon pricing therefore tends to be more efficient compared to the emissions reductions induced by green technology policy.
“A price-based climate policy through European emissions trading or a CO2 tax is superior to green technology policy,” emphasises Professor Sebastian Rausch. He adds: “In principle, however, it is indeed possible to combine the advantages of both approaches in terms of their intergenerational distribution effects: smart funding for the promotion of green technology according to the polluter-pays principle would gain the support of current generations while simultaneously developing an economically sensible climate policy for future generations. We do too often see poorly-designed technology policies, however. One such example is the Renewable Energy Sources Act (EEG), through which the cost to support renewable energy was passed on to consumers for years. Financing this through a CO2 tax would have been more sensible.”