Environmental and technology policies for climate mitigation

We assess different policies for reducing carbon dioxide emissions and promoting innovation and diffusion of renewable energy. We evaluate the relative performance of policies according to incentives provided for emissions reduction, efficiency, and other outcomes. We also assess how the nature of technological progress through learning and research and development (R&D), and the degree of knowledge spillovers, affects the desirability of different policies. Due to knowledge spillovers, optimal policy involves a portfolio of different instruments targeted at emissions, learning, and R&D. Although the relative cost of individual policies in achieving reductions depends on parameter values and the emissions target, in a numerical application to the U.S. electricity sector, the ranking is roughly as follows: (1) emissions price, (2) emissions performance standard, (3) fossil power tax, (4) renewables share requirement, (5) renewables subsidy, and (6) R&D subsidy. Nonetheless, an optimal portfolio of policies achieves emissions reductions at a significantly lower cost than any single policy. © 2007 Elsevier Inc. All rights reserved.

Implications of shale gas development for climate change.

Advances in technologies for extracting oil and gas from shale formations have dramatically increased U.S. production of natural gas. As production expands domestically and abroad, natural gas prices will be lower than without shale gas. Lower prices have two main effects: increasing overall energy consumption, and encouraging substitution away from sources such as coal, nuclear, renewables, and electricity. We examine the evidence and analyze modeling projections to understand how these two dynamics affect greenhouse gas emissions. Most evidence indicates that natural gas as a substitute for coal in electricity production, gasoline in transport, and electricity in buildings decreases greenhouse gases, although as an electricity substitute this depends on the electricity mix displaced. Modeling suggests that absent substantial policy changes, increased natural gas production slightly increases overall energy use, more substantially encourages fuel-switching, and that the combined effect slightly alters economy wide GHG emissions; whether the net effect is a slight decrease or increase depends on modeling assumptions including upstream methane emissions. Our main conclusions are that natural gas can help reduce GHG emissions, but in the absence of targeted climate policy measures, it will not substantially change the course of global GHG concentrations. Abundant natural gas can, however, help reduce the costs of achieving GHG reduction goals.