Picking winners: assessing the costs of technology-specific climate policy for U.S. passenger vehicles

There is debate over the cost-effectiveness of technology-specific versus technology-neutral climate policies. Researchers have investigated this question in top-down energy-economy models simulating the early phases of technological change (R&D). In contrast, the authors use a hybrid energy-economy model (integrating top-down and bottom-up features) to represent the long-run technology and preference dynamics induced by different climate policies during the process of technology adoption. The authors compare policy designs using a case study of the US passenger vehicle sector: different stringency levels of a carbon tax (most neutral), a less technology-specific near-zero emissions vehicle mandate, and more technology-specific vehicle mandates that force manufacturers to sell one vehicle technology: electric, biofuel, or hydrogen. The authors measure policy (or social) costs based on the long-run financial and perceived costs of the policy relative to a non-policy (business as usual) scenario, and incorporate uncertainty in future technology costs and consumer preferences using Monte Carlo analysis. The authors find that the technology-specific standard more effectively induces a critical adoption threshold that reduces the social costs of electric vehicles than a more neutral standard. In some cases, the electric vehicle mandate is also more cost-effective than the carbon-tax scenarios. However, the benefit of a technology-specific standard depends on the ability of policymakers to identify the technology “winner” upfront. The authors results suggest that, with technology-specific policy, policymakers must carefully assess uncertainties to balance the risk of unintentionally picking a “loser” with the risk of not forcing a technology “winner” quickly enough to achieve low-cost climate abatement.