The value of reducing the Green Premium — cost-saving innovation, emissions abatement, and climate goals
Key finding. The paper devises a framework that translates reductions in the Green Premium into equivalent reductions in carbon emissions, making cost-saving innovation and direct abatement commensurable for the first time.
What question did this research address?
Carbon-emitting technologies usually cost less than carbon-free alternatives, and the difference is known as the Green Premium. Innovation that narrows that gap plainly helps meet climate goals.
What was missing was any way to say how much it helps. This paper asked how a reduction in the Green Premium can be expressed in the same units as an emissions reduction, so that innovation and abatement can be compared directly.
What did we find?
The translation is the core contribution. Expressing a cost reduction as an equivalent emissions reduction allows the value of innovation to be stated in the currency in which climate goals are set.
The paper introduces the Climate Optimized INvestment model, an integrated assessment model deliberately designed for teaching and communication so that the mechanism connecting innovation to emissions can be inspected rather than taken on trust.
The consequences of introducing a new technology capable of learning and improvement are examined under three levels of carbon-constraint stringency — an Unlimited budget in which abatement is set only by balancing marginal costs, a Large budget capped at cumulative future emissions of 50 times the initial year's, and a Small budget capped at 15 times.
The stringency of the carbon constraint changes how much cost-saving innovation is worth, so the value of reducing the Green Premium is not a fixed quantity but depends on the policy environment it operates in.
Why does it matter?
Innovation policy and emissions policy are usually argued about separately, often by people who treat them as substitutes. A common unit makes it possible to ask how much innovation is worth how much abatement, rather than asserting that one matters more.
Building the model for transparency rather than for precision is itself a choice worth noting. A model simple enough to teach is a model whose conclusions can be checked by the people they are meant to persuade.
Citation
Ken Caldeira, Lei Duan, and Juan Moreno-Cruz (2023). The value of reducing the Green Premium — cost-saving innovation, emissions abatement, and climate goals. Environmental Research Letters 18, 104051.