Picking winners: assessing the costs of technology-specific climate policy for U.S. passenger vehicles

Policymakers implementing climate policies that aim to direct technological change must decide the extent to which such policies will be technology-neutral or technology-specific. There is a debate over the effect that such alternative designs will have on a policy’s expected cost-effectiveness. Researchers have investigated this question in top-down models that focus on the early phases of technological change (R&D), but no one has yet compared technology-neutral and technology-specific policy designs for the later stages of technological change (commercialization and diffusion), in a model that includes explicit energy technologies. I model these policy designs using a case study of the US passenger vehicle sector in a hybrid simulation model that is not only technology explicit, but behaviourally-realistic and that possesses some degree of macroeconomic feedbacks. I find that technology-specific vehicle mandates results in lower policy cost-effectiveness than a carbon tax on vehicle fuel because the vehicle mandate has a higher risk of policymakers “picking the wrong winner.” However, I find as well that a technology-specific electric vehicle mandate is able to meet a key adoption threshold for getting low-cost emission reductions from PHEVs. Key limitations of my model include: consumers have zero foresight, exogenous assumptions for fuel supply and cost, and assumptions that seem to implicitly favour the adoption of plug-in hybrid electric vehicles over biofuels. The implications of my results are that further research should investigate ways in which technology-neutral and technology-specific policies can be combined to increase expected policy cost-effectiveness and minimize the risk of “picking the wrong winner.