Oikonomou et al. assert that stand alone instruments for climate or energy policy actually have little effect on innovation as compared to the effect of combining certain types of instruments.  It is certainly easy to agree that innovation is better spurred by complimentary policies that provide a greater incentive for innovation.  With energy and climate policy, the need for complimentary policies seems necessary to spur technological innovation to reduce the effect of carbon on the climate.  However, the statement may not be universally true.  As a counter argument, I will provide a couple of examples of technological innovation without policy pressure and one significant technological advance promoted by a single policy.

Left to our own devices innovation will occur without policy pressure.  This is due to basic market forces that will enable innovation.  This is due to our desire for better or new products or a less expensive alternative.  Looking back through history it is easy to find some examples of energy innovation that occurred without policy forces.  Let’s take a look at some energy revolutions.  At the start of the industrial revolution, coal was used as a heating source.  To pump water out of the mines, a steam engine was developed.  The steam engine was fairly quickly adapted to many applications from transportation to powering industry.  This innovation did not require policy.  However, the results of coal consumption required regulation to protect the environment from acid rain and other problems.  The petroleum age ushered in new innovation with the combustion engine.  This technological innovation vastly changed the transportation industry and enabled efficient flight.  The combustion engine did not start with policy.  Regulations followed the petroleum innovations such as the current fuel efficiency standards for automobiles.  Finally, the electrical industry also started without policy.   Electricity started as a replacement for the gas lamp and quickly expanded when the electric motor proved an efficient replacement for coal or petroleum fired plants.  Electricity enabled the polluting fossil fuel power source to be moved away from the population center while providing a relatively inexpensive and safe energy for use in our cities.  Regulations followed our initial electrification to protect the consumers by regulating the monopolies that were created.  Policy regulating these examples came into being after the technological innovation not before.  It’s clear to me that major technological innovation can occur without policy pressure.

One example of a major technological innovation that occurred with a single policy is nuclear power.  This is a truly remarkable example of rapid technological innovation.  According to Walker and Wellock, the Atomic Energy Act of 1954 spurred the rapid development of the nuclear power industry in the United States.  This act was created by a fear of falling behind other nations, namely the Soviet Union and England, in the development of civilian nuclear power.  We had a sense of urgency to become the world’s leader in the peaceful application of nuclear power.  This single act created a combination of government and private industry where the government started to share controlled critical information, provided large research and development assistance through the national laboratories and research subsidies, and provided fuel.  Meanwhile industry provided the investment to build the plants and pay for operating costs (other than fuel) to demonstrate the peaceful application of nuclear power with nuclear power generation plants (Walker and Wellock, 2010).  This heavy policy assist enabled the industry to rapidly progress from concept in 1946 to the first commercial pressurized water nuclear power plant, Yankee Rowe, and the first commercial boiling water nuclear power plant, Dresden 1, to both start-up in 1960 (World Nuclear Association, 2013).  In the end, the policy support and direction enabled an industry today that provides 20% of our electric power.  This was truly a remarkable and rapid technological innovation that was made possible by a single public energy policy, the Atomic Energy Act of 1954.

With historical examples of significant technological innovation occurring without policy pressure and the rapid innovation achieved through nuclear power with a single policy, why do we need complimentary policy to spur innovation for the combined energy and climate policies?  As recognized by Oikonomou et al., market forces are a key driver for innovation.  This was certainly true for the steam engine, the combustion engine, and electrification.  In the case of climate change, putting a price on carbon runs contrary to a free market since it tries to create social value.  The social value is not a natural response in our capitalistic market society.  Left to our own devices, we would choke the world for a profit without due regard for the future.  The complimentary policies are needed in order to create the market pressure or salience needed to spur technological innovation to reduce our carbon footprint.  With the urgency of the climate change we are already experiencing and the dramatic increase in carbon emissions from developing nations, technological innovation is needed to put low-carbon energy sources in place in order to allow Mother Earth to heal herself for our future generations.  In the end, the opening statement that complimentary policy is better at achieving technological innovation than a single policy is generally true but not universally true.

References:

Oikonomou, V., A. Flamos, and S. Grafakos.  Is blending of energy and climate policy instruments always desirable?  Energy Policy 38 (2010) pp. 4186-4195.

S. Walker and T. Wellock.  A Short History of Nuclear Regulation 1946-2009.  United States Nuclear Regulatory Commission, October 2010.

World Nuclear Association.  Nuclear Power in the USA.  www.world-nuclear.org, 31 July 2013.