Green Technology Might Just Be Enough to Save Us

Plenty of reasons for optimism emerged from this year’s COP26 meeting in Glasgow, Scotland. The United States is back in the Paris Agreement, both China and the US have pledged to reduce carbon emissions (Friedman 2021), and many other countries have made additional pledges, including cutting methane emissions and phasing out gas-powered vehicles (Plumer and Friedman, 2021). Still, getting countries to both agree to and follow through on these pledges is difficult. The central tension between developed economies, the historic polluters, and emerging economies whose carbon emissions have not yet peaked remains. Developing countries suspect that reducing emissions will hamper their economic growth, something developed economies did not consider when they were at the same stage. To offset developing countries’ potential loss of economic growth from reducing emissions, developed economies pledged to start contributing $100 billion per year by 2020—a goal that has conspicuously still not been reached (Popovich and Plumer, 2021). All this might cause some angst about the cooperation of countries in the face of a climate catastrophe. However, a new working paper from the International Monetary Fund suggests that it may only take a few key players to follow through on their promises to avoid a rise of 1.5 degrees Celsius. Why? The answer lies in the spread of green technology.

Green technology generally refers to tech that uses renewable energy sources like wind or solar—for example, solar panels. Innovations to make green tech more efficient and cost-effective have long been expected to be a major part of addressing climate change, but in his working paper “Can International Technological Diffusion Substitute for Coordinated Global Policies to Mitigate Climate Change?” (2021), Philip Barrett suggests the impact of those innovations could be much larger than anticipated. If major countries followed through on becoming carbon neutral by the middle of the century, the policy decisions that got them there would lead to a surge of innovation and investment in green technology. What Barrett proposes is that the “diffusion” of these technologies across borders could be an effective way to avert a climate crisis, maybe more so than relying on a global effort to coordinate policies.

In his model, Barrett focuses on the impact of China and the European Union (EU), two economic groups that combined account for about 40% of total global emissions, following through on their promises to be net-zero carbon emitters by 2050. He models different policy options they might plausibly take to get to net zero, and how valuable those policies might be at creating positive spillovers—i.e., spreading and reducing emissions in other places. The model points to a carbon tax being essential, more so than direct investment, in creating a larger market for green technologies. Barrett identifies three policies that China and the EU might implement involving the revenue from a carbon tax: they could rebate the money back to households, they could subsidize green research and development, and they could subsidize green energy production.

The rebate option is the least effective long term and requires a higher carbon tax over a longer period of time in order for both China and the EU to meet their emissions goals. The two subsidy options do not perform much better at first, but down the road, they lead to a much lower carbon tax. Barrett’s model finds that, between the two, subsidies for research are better at reducing emissions than subsidies for production. While they perform similarly in the short/medium term, in the long term the investments in production would delay innovations that make producing green energy cheaper and more efficient; if green energy is already cheap because it’s subsidized, there is less incentive to innovate. This makes investing carbon tax revenue in research and development the clear winner in the model.

The model doesn’t just consider the effects of additional investment in green technology but also the loss of investment in “dirty” technology. If China, the world’s largest coal consumer, implemented a carbon tax, more investments and innovations in coal would suddenly be a losing policy. Not innovating in coal means that other countries also do not get to use those innovations. This makes coal a less attractive choice than the renewable energy sources that are being invested in. In other words, it’s not just the spread of green technology that makes these policies effective, but also the reduced innovations in dirty technology.

Barrett’s model predicts that the effect of China and the EU meeting their goals alone—without considering technological diffusion—would reduce the long-term increase in temperature from an expected 7 degrees Celsius compared to pre-industrial levels, our current trajectory, to around 5 ½ degrees. However, when the model also considers the effect of technological diffusion, the rise in long-term temperature drops to less than 3 degrees Celsius. To be clear, such a result would still be disastrous; however, the point is that even if not all countries are cooperating, there is more of an incentive than is obvious for those countries that do try to reduce emissions: the spillover effects from their policies could be much larger than previously anticipated. If the US, China, India, and the EU meet their goals in reducing carbon emissions, that might, in fact, be enough to keep the temperature rise to below 1.5 degrees.

Skepticism over the ability of these global powers to coordinate and achieve their current promises remains. Ongoing economic, political, and geopolitical disagreements between these countries further complicate efforts for a united front in the fight against climate change.  Additionally, while Barrett’s model might be reason for optimism, he points out the significant difficulty involved in predicting the long-term outcomes of climate policies. A better-safe-than-sorry approach would clearly hope for both technological diffusion and countries coordinating on their climate policies. However, for anyone frustrated with the lack of international cooperation on climate change, Barrett shows that even without every single country on board, we may still be able to avoid this disaster.

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Barrett, Phillip. “Can International Technological Diffusion Substitute for Coordinated Global Policies to Mitigate Climate Change?”. IMF Working Papers, Vol 2021 Issue 173 (June 2021): https://www.elibrary.imf.org/view/journals/001/2021/173/001.2021.issue-173-en.xml

Friedman, Lisa. “China and U.S., at Odds on Many Issues, Agree on a Surprise Climate Deal.” The New York Times. Nov 10, 2021. Accessed Nov 22, 2021. https://www.nytimes.com/2021/11/10/climate/china-us-climate-deal-kerry-xie.html.

Plumer, Brad and Lisa Friedman. “Negotiators Strike a Climate Deal, but World Remains Far From Limiting Warming.” The New York Times. Nov 13, 2021. Accessed Nov 22, 2021. https://www.nytimes.com/2021/11/13/climate/cop26-glasgow-climate-agreement.html?action=click&pgtype=Article&state=default&module=styln-cop26&variant=show®ion=MAIN_CONTENT_3&block=storyline_levelup_swipe_recirc.

Popovich, Nadja and Brad Plumer. “Who Has the Most Historical Responsibility for Climate Change?”. The New York Times. Nov 12, 2021. Accessed Nov 22, 2021. https://www.nytimes.com/interactive/2021/11/12/climate/cop26-emissions-compensation.html?action=click&pgtype=Article&state=default&module=styln-cop26&variant=show®ion=MAIN_CONTENT_3&block=storyline_levelup_swipe_recirc.