Frances Cairncross: A Global Warming Solution is R&D and Phased In Carbon Tax


The world is playing a rigged casino game. “Every year that we inject more CO2 into the atmosphere, we spin the planetary roulette wheel … and the more we continue increasing the emissions that warm the planet, the more the odds are stacked against a favorable outcome.”
So what’s the smartest way to play such a game? Or, more to the point: Is there a way to speed up a massive leap from dirty to clean energy sources that would otherwise take many decades?

A team led by MIT’s Daron Acemoglu has recently argued that the best way to replace carbon-based energy with noncarbon fuels might be to start off with a high level of government subsidies for research and development of clean technologies. (1) Over the course of half a century, these subsidies would be gradually withdrawn and a carbon tax introduced at rates that would build to a crescendo over a century or so before declining. The boost to R&D would speed up the switch to clean energy without cutting economic growth, as a carbon tax alone might do.

Thus the carbon tax would become an effective way to bring about the transition to clean technology only after enough R&D had been done to shift the incentives for innovation.