Chapter 17: Promoting Clean Technology: Theory

Question 1

What generic problems do regulations face?

What conculusion about environmental policy drawn?

Answer 1

Regulations Face generic problems:

1. Rapid economic growth
2. Rising marginal costs of control
3. Leakage problem

Also weakened over time through political influence

Hence: regulation alone might not be sufficient achieve environmental goals

Question 2

What does CTs have in common?

Answer 2

• Waste reduction in manufacturing
• Biomimicry
• Recycling of wastes
• Low input agriculture
• Closed loop production
• Water efficiency
• Renewable energy production

Question 3

Three parts of the definition for Clean Technology:

Answer 3

1. Services of similar quality to existing technology
2. Cost-competitive with existing technologies (in the long run)
3. Environmentally Superior to existing technologies

Question 4

Definition of CT:

Services of similar quality to existing technology: (1)

Answer 4

• Similar or better quality

Bad choices rejected by consumers

Question 5

Definition of CT:

(2) Cost-competitive with existing technologies (in long run):

Answer 5

• Cost comparison: long-run private marginal costs (cost producing additional unit once tech is mature - including all taxes and regulatory costs)
• Biggest problem (solar, nuclear = satisfy other two → hard satisfy this one)

Cost competitive without subsidies
- When addicted to government support - hard wean off
- Maybe sub in the beginning = must be able to take away
- If CTs cannot compete on basis private costs, then consumers will not adopt widely

Question 6

What are the types of clean technologies?

#2 Cost-competitive with existing technologies (in long run)

Answer 6

1. Late-stage CTsCost competitive with existing techs at current volume production
2. Early-State CTsNot yet nigh-pruduction volumes to achieve minimum lr costs
   • Still doing research and progress (lab level and test market)
   • Not expected to be CC

Question 7

#2 Cost-competitive with existing technologies (in long run)

Falling average costs?

Answer 7

What is the solar market going to look like? → Already know what other markets look like

• Hence, financing project hard
• Therefore, hard to get large upfront costs

Falling Average Costs:

• Economies of scale
• Learning by doing: as production ramps up, discover lower-cost methods
• External economies: As complementary industries and markets develop, input costs fall

Question 8

Definition of CTs

Environmentally superior to existing technologies

Answer 8

Smaller carbon footprint, less damage wildlife

• Problem #1: Need to track impacts “cradle to grave”
  Solution?
  Life-cycle analysis used to determine environmental impact of tech
• Problem #2 Different techs have non-comparable impacts
  Solution?
  Monetize and total expected life-cycle environmental damage for each source

Question 9

What is the Path Dependency Theory?

Answer 9

Ex: choosing a major, longterm relationship

• Current tech represent only one possible path development
• Path society chooses depends variety factors

Once path chosen, other paths closed off:

• Infrustructure and R&D investment supposed chosen tech
• Economies of scale helps consolidate cost advantage
• Complementary tech develop that are tailored to chosen path

Question 10

Path Dependency Theory

How to determine a path:

Answer 10

1. Relative production costs
2. Consumer preferences
3. Relative political strenght of conflicting interests
4. Chance historical circumstance

Question 11

Path Dependency Theory

Role of the Government:

Answer 11

Influence market-driven process of tech development towards path consistent with sustainable future

Question 12

What are obstacles facing CTs?

If CTs are superior, why not being developed by private entrepreneurs?

Answer 12

CTs are cost competitive, but because they compete in mature markets with low profit margins, they are NOT likely to be highly profitable

lack subtantial profit advantange …

Question 13

What makes it difficult to overcome the obstacles facing CTs?

Answer 13

1. High sunk costs in marketing
   - Changes to success is very small → might not want to take up costs due to uncertainty
2. Thin supplier markets
3. Poor access capital
   
   • require large start startup costs → hard gague certain/new markets
4. Consumers requirements for high rates of return for investment in efficient, durable CTs

Question 14

What are the government obstacles to CTs?

Answer 14

• Direct or indirect substidies to highly polluting competitors

Why?
Substize because large companies are huge empoyers (not because they are favored in the present)

- Get addicated subsidies & political incentives
- Externalities

Direct Subsidies:

• Tied production level

Indirect Subsidies:

• More and more common (harder to see)
• Not give money but not make you give me moneyEx: not give subsidies for coal production but give land for free

Question 15

What are direct and indirect subsidies?

Answer 15

Direct Subsidies:

• Tied production level

Indirect Subsidies:

• More and more common (harder to see)
• Not give money but not make you give me moneyEx: not give subsidies for coal production but give land for free

Question 16

How can government mistakes make bad subsidies get “locked in?”

Answer 16

Governments makes mistakes: bad subsidies can get “locked in”

1. Nuclean fusion
2. Corn-based ethanol

Inefficient tech survive due to subsidies:

Nuclear fission

Should we adopt tech x?

Not equipt make decision: best and brightest work in the industry

• Not powerless:
  
  1. Level the playingfield
  2. Cant pick the winner but can pick a looser
• Want to subsidize: based low-cost preformance
  
  • If you can come in below current technology → then give more funding to help push along
  • Show that you will be cost-effective (rather than speculation)

Question 17

What two methods can be used to minizine government obstacles?

Answer 17

(1) Minimizing Errors and Political Influence:

1. Level playing field: eliminate subsidies for dirty tech and internalize external costs
2. Promote only clear environmental winners
3. Tie subsidies to reduction in cost and improvements in quality

(2) Least-Cost Planning:

• Gov’s objective is to speed up, not replace, market process of adoption of CTsMarket forces utimately only spread profitable techs
• Bureaucrats avoid making expensive commtments to technological white elephants

Question 18

How to promote early state CTs?

Answer 18

Relatively low profit advantage of CTs discourages private-sector initiatives to overcome natural inclination to stick with “what works”
Policies:

1. Provide info to consumers and reduce preceived risk of adoption
   
   1. If in late-stage development: product labelingChange way people behave
   2. “Environmental packaging:” carbon emitted, trees cut down, animals killed ….
      How much damage is being done? → change consumer behavior
   3. Minimim design/safety standards:
      
      • Building design, certain products must meet certain level energy efficiency
2. R&D funding (research)
3. Tech-forcing standards
4. Infrustructure investment
   
   1. Ex: biggest impediment for electric cars are that there is not infrustructure around it → help (not subsidize unit costs) but building
5. Help private firms get loans (indirect subsidies)
   
   1. Why: government cant go bankrupt like private companies ⇒ less riskTherefore, borrow at lower interest rates and then borrow to private c
   2. Co-sign on the loan (if company goes bankrupt then the government pays it back = lower interest rate)

Question 19

How to overcome information barriers:

Answer 19

1. Product labeling requirements
2. Flexible design standards
3. Tech assistance programs
4. Subsidies for consumers

Forms:

1. Tax credit
2. Low-interest loans 
3. Grants 

Loans and grants preferable to encourage small scale CTs 

- requires group to justify investment
- Discourage non-serious applicants
- Provide means to allocate funds on least-cost basis

Question 20

How to promote late-stage CTs:

Answer 20

1. Product labeling and certification
2. Minimum design standards
3. Utility marketing
4. Technical assistance programs
5. Consumer subsidies

Question 21

What are technology-forcing regulations?

Answer 21

Set deadline firms deliver tech that is not yet marketed

• (CAFE) Corporate Average Fuel Economy - require firms meet increased average vehicle mileage in future years
• (RPS) Renewable Portfolio Standard - requires utility to incresae certain percentage of renewable energy generation in mix

Question 22

Is alternative agriclture a clean tech?

Answer 22

Organic more ineffient than other mass-produced agriculture

• Cost competitive? Often: reduced yields (maybe) but reduce costs (definitely)
  Cost reduction often sufficient to offset any lost production
• Environmentally superior conventional agriculture? yes
• Comparable quality? Yes

Question 23

What are the barriers to adopting clean agriculture technology?

Answer 23

Low profit advantage to overcome substantial adjustement costs

1. New managerial techniques
2. Successful techniques highly region-specific
3. Time to transition

Question 24

What are direct and indirect benefits?

Answer 24

Direct benefits:

Cleaner and lower volume waste disposal

Indirect Benefits:

• energy savings
• Upstream pollution avoided

Due to uncertainty: might stick current technology because of uncertainty. If profit gains, but they are not garunteed (imperfect information: costs/benefits might be overstated or understated)
then it is not worthit = not adopted ⇒ lack clear profit advantange