Stabilization Levels: Cost Estimates by Rate of Technological Learning

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Technological learning can either be endogenous, exogenous or induced by climate policy.  Endogenous technological learning in this context occurs when environmental factors spur the technological learning.  Induced technological change is a subcomponent of endogenous technological learning.  Exogenous technological learning means that technological learning is taken to be something that cannot be influenced. 

Induced technological change can save abatement costs, though some studies dispute the efficacy of induced technological learning.  The initial investment (R&D) costs may be too high and not yield a sufficient return.  Also, induced technological change is initially more costly.  Realization of benefits is delayed.  Furthermore, under a trading scheme, the incentives to induce technological change are attenuated, leading to delays in technological innovation, though some studies maintain that the overall pace of technological advancement will not be slowed despite this.

Another variable in modeling technological change is the learning-by-doing component.  In learning-by-doing, costs of new technologies decline as a function of cumulative experience.  Thus, the cost of new technologies developed later on will be less, provided that there has been an accumulation of experience in the interim.  This accumulation of experience comes from ramping up technological learning in the short run, with the dividends paid out as cheaper costs later on.  Some technologies, such as carbon capture and sequestration (CCS), may be particularly amenable to future cost savings according to learning-by-doing models.  Overall, learning-by-doing, like induced technological change, leads to higher costs in the short run, but lower costs later on.  The question is then whether the delayed benefit outweighs the near-term cost.

Other factors constrain the effectiveness of technological development.  There are problems of diffusion.  The technology must be put into practice, which implicates potential problems of public acceptance, reliability, and international security.  Also, the rate of technological learning is inherently uncertain, regardless of whether it is endogenous or exogenous.