“Technology funding makes climate protection cheaper”

From the Potsdam Institute for Climate Impact Research a call to bring on the carbon trading and other tools. Of course, its all just modeling again.

09/19/2011 – To cost-effectively protect the climate, not only an emissions trading scheme but also financial support for new technologies is needed. Economising on targeted funding, for example for renewable energies, makes climate protection more expensive – as scientists of the Potsdam Institute for Climate Impact Research (PIK) now calculated for the first time, using a complex computer simulation that spans the entire 21st century. Without funding, energy technologies with high cost reduction potentials will hardly stand a chance, since they require a significant initial investment: a case of market failure.

Technology funding makes climate protection cheaper Windpark in California (Foto: Thinkstock)

“Companies in the global energy sector often rely on familiar technologies instead of striving for innovation – they are more hesitant than companies in other industries, our analysis shows,” says Matthias Kalkuhl, lead author of the study published in the scientific journal Resource and Energy Economics. Behind this behaviour stands not just inertia. Pioneers are paying the bill for the development and the risk of innovation, whose results are beneficial to everyone, and are then copied by competitors. Additionally, there is uncertainty for companies about the long term profitability of investments into new technologies, since the political framework – for example future CO2 emission prices – is unreliable: “The result is a self-reinforcing lock-in effect,” explains Kalkuhl. “Inferior and therefore more expensive technologies dominate the market for decades. From a management point of view, it is rational. But economically it is fatal.”

The reason for this particular restraint of the energy sector is this: the product – electricity or heat – is the same to the consumer, no matter which technology was used to produce it, according to Kalkuhl. As the product is homogenous, consumers have a low incentive to pay a significantly higher price for an innovative technology. This is in stark contrast to the case of smart phones or e-book readers. These can successfully capture new markets with clever product differentiation.

Effective political actions to promote new technologies, the computer simulation shows, are a feed-in tariff or quotas for energy produced by particular technologies. According to the scientists, only funding targeted at emerging technologies is effective: offshore wind power, usage of biomass, solar energy. The cost-benefit ratio is especially positive, if the financial support is limited to a period of, for example, 30 years. However, it is not economically beneficial to support already well-developed CO2-reducing technologies: nuclear reactors, water power, or highly efficient gas power plants.

For their analysis, the scientists have designed a new computer model which calculates the interplay of companies, households, and political actors as well as the resulting welfare effects. This so-called dynamic multi-agent model “shows robust results for a big range of scenarios, even though we had to include a few simplifications,” says Kalkuhl. The model assumes a working emissions trading scheme with ambitious climate protection targets which promotes low carbon technologies.

The results are in contrast to conventional economic wisdom that emissions trading paired with technology funding is an inefficient duplication, and that innovation is sufficiently ensured by patent protection and general research funding. “We found that although it is possible to reduce the greenhouse gas emissions through emissions trading only, this is at a higher cost,” says Ottmar Edenhofer, chief economist of  PIK and co-author of the study. Only targeted funding “can introduce new technologies to the market which then show a steep learning curve – in other words which improve and become cheaper quickly.” Higher costs make political measures to protect the climate more difficult to achieve, thus making emissions trading and technology funding two sides of the same coin.

The effects only show up when the investment behaviour of many decades is taken into account. Previous studies were often only on the short term. “But climate policy is a long-term project,” says Edenhofer. The government does not know any better than the companies which technologies are viable, but especially because of this uncertainty, it is the only player who can afford funding technology. However, without the introduction of a price on CO2 emissions paired with an emissions’ cap, even the best technology funding is, says Edenhofer, rather useless. “Fighting climate change with subsidies only is simply not affordable.”

Article: Kalkuhl, M., Edenhofer, O., Lessmann, K. (2012): Learning or Lock-in: Optimal Technology Policies to Support Mitigation. Resource and Energy Economics, 34(1), 1–23 [doi:10.1016/j.reseneeco.2011.08.001] (online first)

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42 Responses to “Technology funding makes climate protection cheaper”

  1. Greg Holmes says:

    I do not understand how it is NOT economically efficient to fund new Nuclear Power stations.
    This is the only non polluting power with a constant economic flow that there is. It is totally possible to fund and imporve this technology, just politically brave, and we know how many brave politicians there ARE (SARC)

  2. Mike Bromley the Canucklehead says:

    “The government does not know any better than the companies which technologies are viable, but especially because of this uncertainty, it is the only player who can afford funding technology.”

    Excuse me, but WTF???? What kind of hare-brained assertion is that? The “government” can afford nothing of a sort. That has to be the stupidest thing I’ve heard in a long time.

  3. R. de Haan says:

    Total Hubris.

    Forget all about Potsdam Eco Nazi’s.

    They want our Blue planet in Green Shackles, nothing more, nothing less.

  4. c1ue says:

    Kalhkuhl says: “The reason for this particular restraint of the energy sector is this: the product – electricity or heat – is the same to the consumer, no matter which technology was used to produce it, according to Kalkuhl. As the product is homogenous, consumers have a low incentive to pay a significantly higher price for an innovative technology. This is in stark contrast to the case of smart phones or e-book readers. These can successfully capture new markets with clever product differentiation.”

    To compare electricity or heat to a cell phone or e-book reader is idiotic.

    Neither cell phone nor e-book readers are essential to life or the economy. They are luxuries.

    As was famously quipped by an audience member during the New York Federal Reserve head William Dudley’s speech: “I can’t eat an iPad”.

    How about comparing electricity or heat use to something with a more similar economic niche, like food?

  5. Nuke Nemesis says:

    Greg Holmes says:
    September 20, 2011 at 9:02 am
    I do not understand how it is NOT economically efficient to fund new Nuclear Power stations.
    This is the only non polluting power with a constant economic flow that there is. It is totally possible to fund and imporve this technology, just politically brave, and we know how many brave politicians there ARE (SARC)

    They used a model and models only do what they are programmed to do.

  6. Nuke Nemesis says:

    c1ue says:
    September 20, 2011 at 9:26 am
    Kalhkuhl says: “The reason for this particular restraint of the energy sector is this: the product – electricity or heat – is the same to the consumer, no matter which technology was used to produce it, according to Kalkuhl. As the product is homogenous, consumers have a low incentive to pay a significantly higher price for an innovative technology. This is in stark contrast to the case of smart phones or e-book readers. These can successfully capture new markets with clever product differentiation.”

    To compare electricity or heat to a cell phone or e-book reader is idiotic.

    Neither cell phone nor e-book readers are essential to life or the economy. They are luxuries.

    As was famously quipped by an audience member during the New York Federal Reserve head William Dudley’s speech: “I can’t eat an iPad”.

    How about comparing electricity or heat use to something with a more similar economic niche, like food?

    Some people don’t want us to have cheap food, either. They want us to only eat approved foods for our own good.

  7. Espen says:

    Is this a joke? A crazy economist called Kalkuhl – sounds like a story from the German Mickey Mouse magazine :-)

  8. Owen says:

    Greg Holmes,
    It would certainly need to be brave politicians, because with current laws, the watermelon groups will sue all the profitability out of nuke plants. It will take a change of law and regulation to make nuke plants cost effective in the US. This would then leave the politicians open to demagoguery from their opponents that they wanted to ruin the environment with millions of Fukishima 1’s littered throughout the landscape. Since fear is a politician’s favorite/most effective tool, this would be irresistible.

  9. Kasuha says:

    I think one of things they may have omitted in their models is that this fund-deserving emerging technology may prove to be less efficient and beneficial than the old “inefficient” technology even after pumping money into it for 30 years. Wind power seems to be one nice emerging example.

  10. DirkH says:

    Propaganda maskerading as science; as always from the PIK. Of course they made their multi-agent model show what they want; how difficult would that be – even easier than tuning your very own GCM to show what you want it to show.

    Edenhofer knows nothing about economy. If you want to read his “refutation” of the recent scandal where that Greenpeace Germany guy pushed the Greenpeace point of view through the IPCC WG3 renewables report, you can do so for only 18 USD.
    http://www.nature.com/nclimate/journal/v1/n5/full/nclimate1178.html

  11. DirkH says:

    I am sure their model is complex enough to show quasi-chaotic behaviour. Now what you do is you run variations of the model, varying some start conditions and parameters, and classify the results with an automatic classificator. The better the model shows the desired result, the better it is.

    You run an evolution on the model variations. After each generation, you kill the worse half and keep the better half. You create variations from the survivors to fill up the population. Repeat until the best individual is good enough to show the desired conclusion.

    If someone from the PIK reads this and you have a million Euros in funding left, I can build that for you. It will make your job much easier for the next propaganda papers.

  12. john says:

    Congress Votes to Extend Tax Grants for Solar and Wind Energy

    http://blog.greenpointpartners.com/green-energy/renewable-energy-green-energy/congress-votes-to-extend-tax-grants-for-solar-and-wind-energy/

    [snip]

    This Wednesday the Wall Street Journal reports that the U.S. Senate passed a one-year extension of the Department of Treasury Section 1603 tax grant as part of the tax bill compromise. Senators Cantwell, Feinstein, Ensign and LeMieux pushed to extend the grant program, which hopes to stimulate growth in the solar industry in the last year.

  13. Bloke down the pub says:

    ” Additionally, there is uncertainty for companies about the long term profitability of investments into new technologies, ”
    ====================================================
    I’ll help them with their uncertainty problem. Wind power will never be profitable without subsidies as long as the wind keeps stopping at inconvenient moments.

  14. LKMiller says:

    I cannot be the first to have noticed the use of the phraseology, “climate protection,” as if mankind were an active virus upon mother earth which needs to be controlled. For anyone who still doubts the link between wealth redistribution and the religion of anthropogenic CO2 induced global warming, I have a bridge for sale.

    Cheap at twice the price.

    This is a classic example of newspeak.

  15. Justa Joe says:

    A person can make the same argument that these “researchers” are making for any product ever imagined. Since the free market doesn’t want it the government (tax payers) must finance it indefinitely seems to be the gist of their argument.

    “…As the product is homogenous, consumers have a low incentive to pay a significantly higher price for an innovative technology. This is in stark contrast to the case of smart phones or e-book readers. These can successfully capture new markets with clever product differentiation.” – Kalhkuhl

    Electronic gadgets offer different functionality at different price points. People are willing to pay more for an item that intrinsically has more value. A watt of electricity is a watt of electricity. it has the same value no matter the means of generation.

  16. Jay Davis says:

    The government is the only player who can afford funding technology? Governments do not pay for anything, taxpayers do! And the majority of taxpayers do not want their tax dollars wasted on pie-in-the-sky schemes. Look at how well Solyndra worked out. When and if the “alternative” energy sources become economically viable, private industry will try to develop them. Until then, government should stay out of the start up business.

  17. Roger Knights says:

    “Pioneers are paying the bill for the development and the risk of innovation, whose results are beneficial to everyone, and are then copied by competitors.”

    This ignores the effect of patent protection.

  18. RobW says:

    Please send you cheque to…

  19. edbarbar says:

    Wind power scares me. I mean, imagine what happens when all that wind is slowed down? What is going to cool the earth? As anyone knows, when there is a breeze, one gets cooler. That’s why we have fans! Same principle. Slowing down the wind will heat up the earth! Wind power MUST BE STOPPED at ANY COST!

    The earth will cook without wind!

  20. Janice says:

    “The effects only show up when the investment behaviour of many decades is taken into account. Previous studies were often only on the short term.”
    When I was a small child, in the 50’s, my parents would often go out driving on the weekends. I can remember even then, my father pointing out large fields with many glass-covered objects in them. He used a phrase which I didn’t understand until I got older. The phrase was “boondoggle.” So, as early as in the 50’s, there were large arrays of solar collectors which were considered by most technical people to be simply money-sinks for taxpayer money. We have been “investing” in some of these projects for a good 5 or 6 decades, with no real advances or breakthroughs, and no hope of them ever being economically feasible. I think the effects have shown up.

  21. Jaypan says:

    Since PIK’s Edenhofer has openly declared “it’s all about wealth distribution, not climate”, why does anybody still care?

  22. Vince Causey says:

    Sigh. Rarely have I read such lame drivel. The author writes: “Without funding, energy technologies with high cost reduction potentials will hardly stand a chance, since they require a significant initial investment: a case of market failure,” thereby showing his ignorance of markets. No, this is not a market failure but a measure of how the market is supposed to work.

    The market determines, based on all available evidence, whether or not there would be a net profit in investing in some technology. The very fact that businesses are not investing is that they cannot see any return to be had. So who is this writer to come along and say these technologies are inherently viable and that businesses just can’t see it? If he has some superior knowledge and foresight of this imagined technology, then I suggest he takes his ideas to some venture capitalist firms, and convince them with hard logic. More likely though, he is not possessed of superior technological prescience, and is no better than the likes of Chris Huhne – armchair idealists who imagine that all viable technologies can be brought into reality by throwing enough money at them.

    Later he explains “Only targeted funding “can introduce new technologies to the market which then show a steep learning curve – in other words which improve and become cheaper quickly.”

    There he goes again. What evidence is there that new technologies improve and become cheaper, much less cheaper quickly? This is the kind of wishful thinking that seems to be pervasive these days. It is complete nonsense.

  23. Kitefreak says:

    Well, I can tell you, I’m seriously thinking of spending £1,700 on a 4KW diesel generator and stocking up on diesel. These idiots who are driving us to the ‘green energy’, ‘low-carbon’ economy have got me seriously concerned about continuity of energy supply. They are the same idiots who, despite their myriad ‘expert’ economic advisors, failed to predict the ongoing global economic problems caused by reckless creation of money as debt and laundered as triple A rated derivatives.

    I may never need the insurance (of the generator) but funding that technology will be my (cold) climate protection. I really do wish I didn’t have to think about it – it’s a lot of money. But think about it: how much is a kilowatt of electricity worth when the grid’s down or flaky and you’re shivering in the cold and dark? Another Carrington event, EMP attack or just the plain stupidity of idiot politicians following insane policies leading to blackouts for ordinary people could lead to this.

    So I’m doing a Stern Review of my life, examining the costs involved in protecting myself against the stupidity of politicians now, versus the cost of reaping the harvest of their stupidity later on in life.

    Think I’ll opt for the precautionary principle, in this case.

  24. Michael Penny says:

    So they write a program to give them the answers they wanted and then they say it proves their point. What am I missing here?

  25. Dave Wendt says:

    Time again for another check in with CAISO

    http://caiso.com/outlook/SystemStatus.html

    As of 1:30 PM current system demand 35663 MW
    wind generation contribution 20 MW
    solar generation contribution 426 MW

  26. john says:

    Solargate Meets Enron: Solyndra CEO And CFO To Plead The Fifth

    http://www.zerohedge.com/news/solargate-meets-enron-solyndra-ceo-and-cfo-plead-fifth

  27. kadaka (KD Knoebel) says:

    Roger Knights said on September 20, 2011 at 11:13 am

    “Pioneers are paying the bill for the development and the risk of innovation, whose results are beneficial to everyone, and are then copied by competitors.”

    This ignores the effect of patent protection.

    What effect? As I heard well over a decade ago, there’s a consistent pattern to doing manufacturing in China: Move there, open up a plant, and a year or two later there’s a new plant down the street making your product and/or using your process and undercutting your prices. It has been noticed how effectively one may prosecute a patent infringement case against the Chinese (and yes I’m addressing the manufacturers as if addressing the entire country, given that the government, implicitly and explicitly, strongly controls manufacturing in China). Likewise Russia is not known for respecting patents as well, and there are more countries where such is to be expected.

    Of course the patent office hasn’t helped and is making a mockery of what was a patent and what it implied. Awarding of patents to naturally-occuring DNA segments and genes, pharmaceutical companies are allowed to tweak existing medications then are granted new patents although there’s no great change in effects (now-generic Prilosec became new-patent-protected Nexium, etc). And software patents are becoming a joke, just about everything is now variations of the same themes. Indeed, there are many “minor tweaks” vying for new patents, which in no way represent the sort of field-altering innovations that are worthy of such protection. Patents are issued which, frankly, shouldn’t have been issued, and are deserving of attempts to subvert them.

    Patent protection can be a powerful tool to promote innovation. But, patent protection exists only when dealing where such protection is respected. Some places don’t respect them, some patents don’t deserve respect.

    Plus, it’s also very difficult for the “little guy” independent innovator. They have to cough up a lot of money for a patent attorney who’ll do a patent search. Then, after paying all the fees there’s a long wait, during which they may see someone else using their idea and swamping the market, especially if it’s a “hot new idea” where time was short to get it on the market. “Patent(s) applied for” or “patent(s) pending” isn’t much of a deterrent, if you market your idea before issuing. Then, if they do get the patent, comes defending the patent, problematic when higher-priced patent attorneys dig deeper and find what could be considered “prior art” and/or that this is an “obvious” innovation, and move to get the patent revoked.

    If you’re not a well-financed company which can afford the fight, generating lots of money from use or licensing to justify the fight, seeking of a patent doesn’t seem to make much sense these days. And for those with that level of funding, especially for something that if it is worthwhile should be able to attract venture capital as needed, government (actually taxpayer) assistance should not be needed.

  28. RossP says:

    Memo to Herr Kalhkuhl :
    Go out and buy a newspaper. Read it carefully. You’ll very quickly find out the Governments , especially in the EU, have no money for your crazy schemes. You’ll also note that the latest pronouncements from the IMF say most economies are likely to ” up the creek without a paddle” for sometime to come.
    So I suggest you put your begging bowl into storage as it is not likely to get anything put into it for sometime.

  29. Don Horne says:

    Solyndra Green IS people!

  30. Brian H says:

    Amongst the many irrationalities of the “pump priming” excuse for renewables subsidies is the refusal to acknowledge “the basic physics”: dilute, dispersed energy sources are INHERENTLY more expensive to exploit than (pre-)concentrated ones. When it comes to extreme dispersal, along with time “dispersal” (variability), the problem becomes intractable.

    Technology is the art of the possible, not pixie dust.

  31. Jeff says:

    Cleverly written, but the central theme is that renewable energy will become economically viable if only “someone” will pick up the tab for the period of time in which it is not economically viable. The other conceit is that people have an interest in paying for an Apple version of 100 KwH because it is “cooler” than the PC version of 100 KwH.

  32. Chuck Nolan says:

    Are these people stupid?
    We have been supporting research on wind and solar for quite awhile.
    Technology is slow to get there.
    Bell Labs has been working on solar since oh, maybe 1947 or so.
    Motors and generators are constantly improving.
    And windmills, they’ve been around since forever.
    Maybe, just maybe, they’re looking in the wrong direction for energy.

  33. “Companies in the global energy sector often rely on familiar technologies instead of striving for innovation –

    Ever hear of “shale gas”?
    “Fracking”?
    Barnet Shale?
    Marcellus?
    http://en.wikipedia.org/wiki/File:Shaleusa2.jpg
    Or perhaps wide azimuth seismic acquisition and processing?

    ““We usually find oil in a new place with old ideas. Sometimes, we find oil in an old place with a new idea, but we seldom find much oil in an old place with an old idea.”

    Several times in the past we have thought that we were running out of oil, when actually we were running out of ideas.”
    – University of Tulsa Petroleum Geology Professor Parke A. Dickey, September 1958

  34. P.G. Sharrow says:

    Potsdam Institute for Climate Impact Research

    These people should be tried for crimes againist humanity. Solar power farms, wave power farms and wind power farms can never provide cost effective energy for modern society. They are only good for special applications and needs that grid power can not or will not meet.
    I have been involved in alternative energy for over 40 years and can assure you that these systems can not even pay back the cost of repair and maintaince without subsidies. Without government mandates they will be abandoned or scrapped. Any one that says that these are the future are fools, or worse, deliberate destroyers of civilization. pg

  35. Ospite Scherzoso says:

    “only funding targeted at emerging technologies is effective”

    Windmills are there, documented, since 2000 years. And don’t get me started with neanderthalians’ burning biomass in their caves.
    The very first nuclear power plant was started by E. Fermi in 1942, if I recall correctly.

    Now, which one would you say is the emerging technology?

  36. TomVonk says:

    As the product is homogenous, consumers have a low incentive to pay a significantly higher price for an innovative technology. This is in stark contrast to the case of smart phones or e-book readers. These can successfully capture new markets with clever product differentiation.”

    Is it possible that somebody even reads something as idiotic as that?
    How many successful businesses had run this brain washed watermelon?
    Let me guess … none?
    There is a reason why he writes stupid articles instead of building bridges or founding businesses – he is utterly unable to do the latter.

    These guys in Potsdam are a global catastrophy waiting to happen and the only cleverly differentiated, innovative and economically efficient measure to take is to close that hole down and fire all of them.
    That way Germany makes at least some useful savings and gets rid of a whole crowd of dangerous parasites.

  37. John Marshall says:

    Simple climate mitigation.

    Keep warm in the winter.

    Keep cool in the summer.

    We know this already the question is the power method used to gain these two simple things. The cheapest is a return to the old methods of coal and oil/gas with nuclear on the side..

  38. rstritmatter says:

    Looking at what the research marketplace is doing today, I would suggest that carbon dioxide will be valuable in the future not through various cap and trades etc but because it will soon be used for a variety of profitable industrial processes now being pioneered under the probably false belief that they are needed to “save the planet.”

    Necessity is the mother of many valued inventions.

  39. Roger Knights says:

    kadaka (KD Knoebel) says:
    September 20, 2011 at 2:42 pm

    Roger Knights said on September 20, 2011 at 11:13 am

    “Pioneers are paying the bill for the development and the risk of innovation, whose results are beneficial to everyone, and are then copied by competitors.”

    This ignores the effect of patent protection.

    What effect? As I heard well over a decade ago, there’s a consistent pattern to doing manufacturing in China: Move there, open up a plant, and a year or two later there’s a new plant down the street making your product and/or using your process and undercutting your prices. It has been noticed how effectively one may prosecute a patent infringement case against the Chinese (and yes I’m addressing the manufacturers as if addressing the entire country, given that the government, implicitly and explicitly, strongly controls manufacturing in China). Likewise Russia is not known for respecting patents as well, and there are more countries where such is to be expected.
    ………………….
    Patent protection can be a powerful tool to promote innovation. But, patent protection exists only when dealing where such protection is respected. Some places don’t respect them, …

    But solar panels are a product that China sells to the West (mostly). Chinese imports that violate patents can be blocked by appealing to the International Trade Commission in Washington DC.

    Plus, it’s also very difficult for the “little guy” independent innovator. They have to cough up a lot of money …. Then, if they do get the patent, comes defending the patent, problematic when higher-priced patent attorneys dig deeper and find what could be considered “prior art” and/or that this is an “obvious” innovation, and move to get the patent revoked.

    But the little guy can buy insurance policies that partly or wholly finance patent enforcement litigation. Lloyds of London and Intellectual Property Insurance Services corp. are two leading firms. For more info., see p. 427 of David Pressman’s Patent It Yourself.
    ———
    My main point stands: the author’s statement ignored the effect of patent protection. I.e., he wrote as though it didn’t exist at all, not that it was imperfect. He did so because he wanted to hustle his readers along to his conclusion (Gov’t. funding needed) and not have them dawdling over inconvenient considerations that would cause them to say, “Hey, wait a minute.”

  40. Roger Knights says:

    PS: Another point: It’s immaterial in the case under discussion here that the little guy has difficulties fighting a patent infringer. The infringed companies would be hundred-million dollar firms that could easily afford the cost of patent litigation.

  41. Doug in Seattle says:

    When oil and gas were cheap it made sense to buy it cheaper overseas and save our hydrocarbons for when the foreign supply began to dwindle and thus became more expensive.

    When oil and gas were cheap it didn’t matter much whether oil and gas tax funds were siphoned off to research alternative energy sources.

    When oil and gas were cheap I never took the lunatic luddites of the environmental movement seriously, because they were few and everyone understood they lived in a dream world.

    Well the times have changed and oil and gas are lot less cheap. But it seems the price is not related to abundance but to government meddling, and the lunatics I didn’t take seriously are now running the government. And to cap it all off they won’t let us exploit the oil and gas we wisely didn’t use when foreign oil was cheaper than ours.

    Its quite a mess. I hope with the failure of the IPCC, the more recent failure of the golden boys of Solyndra, and similar failures of other experiments in “green” market manipulation by the lunatic luddites, we will get an opportunity to reverse the madness.

    I still have hope, but its been a wearying fight and its easy to get pessimistic. There are still 40% to 50% of adults out there who claim in polls they will vote to re-elect the lunatics who put us where we are today. And its even worse in Europe!

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