Let’s Fund’s next project might be trying to address climate change.

Our analysis and research on this topic is still in progress, but you can find the theoretical motivation for this in this paper – for a summary see below. Stay tuned!

Highlights and key messages

  • Greenhouse gas emissions increasingly originate in emerging economies
  • Advanced economies’ policies overemphasize reducing their own emissions
  • In order to most effectively prevent climate change, policies should optimize to prevent emissions globally by inducing energy innovation and thus providing the global public good of cheap, clean energy technology
  • Here we discuss the effectiveness of different policies–carbon pricing, clean energy R&D funding, subsidies for renewables, regulation such as vehicle emission standards, and cutting fossil fuel subsidies – to induce energy innovation
  • Clean energy subsidies, carbon pricing, but especially increasing clean energy R&D should be prioritized

Policy recommendations

For policymakers:

Larger high-income countries with existing public research infrastructure should increase funding for clean energy R&D to provide the global public good of cheap, clean energy technology. Smaller high-income countries without a strong clean energy R&D ecosystem might want to focus on renewable energy subsidies, which will pull in foreign firms and induce innovation. All countries should coordinate on carbon pricing mechanisms such as emissions trading.

For civil society organizations and philanthropists:

Advocacy should push for carbon pricing and higher spending on energy R&D and philanthropists should fund such organizations.

Abstract

Climate change will hit developing countries hardest, imposing high economic and social costs. High-income countries’ policies often overemphasize reducing emissions in their own countries, even though their policies should be optimized to prevent emissions globally, which will increasingly originate from emerging economies. For this reason, I argue that the most effective policies to prevent climate change are those that induce clean energy innovation to provide the global public good of cheap, clean energy technology. I discuss the effectiveness, advantages and disadvantages, and crucial considerations on the applicability of the many policy levers the social planner can push to induce energy innovation. These policy levers include: cutting fossil fuel subsidies, carbon pricing (including carbon taxes and emissions trading), clean energy subsidies, clean energy R&D spending, tax breaks for private sector clean energy R&D and changing intellectual property laws, regulation and expected regulation (e.g. vehicle emission standards), climate change research funding, and high impact climate aid. I tentatively conclude that clean energy subsidies, carbon taxation and especially higher investment in clean energy R&D are particularly promising policy solutions to prevent climate change and thus benefit developing countries.