Green Energy, Efficiency and Climate Change: An Economic Perspective - Green Energy and Efficiency: An Economic Perspective - page 9

We should also bear in mind that quantity instruments (command and control
policy) do not operate in the same way as price instruments (taxes and subsidies)
and both should be carefully designed when energy ef

ciency and energy conser-

vation are the objectives.
Finally, culties. Any energy policy needs a

medium and long run perspective and it has to include considerations that go
beyond technological and economic ones. Examples include considerations dealing
with consumer behavior, education for achieving ef

let us mention some other dif

ciency in consumption and

knowledge about the consumers ' discount rates. There is work in progress in these

important areas but there are no de nite answers for all the questions raised

(e.g. [ 28 ]).
When considering policy options, technological change and the way in which
this change can be pushed in the right direction is another crucial variable. The
response of technological change to the development and use of energy sources that
result less harmful for the environment is analyzed by Acemoglu et al. [ 1 ]. Their
work introduces endogenous and directed technical change in a growth model with
environmental constraints. Their analysis characterizes dynamic tax policies that
achieve sustainable growth or maximize intertemporal welfare. The conclusions
obtained in this research depend greatly on whether the inputs used in production,
that come from two sectors (a clean and a dirty one) are suf

ciently substitutable or
not. When there is sufcient substitutability between inputs of production, instru-
ments such as carbon taxes and research subsidies should be a component of energy
policy as they can help to achieve sustainable long-run growth. Furthermore, if an
exhaustible resource is used in the dirty production sector, the presence of two
inputs that are close substitutes will facilitate the switch to clean innovation,
without any kind of policy.
These results serve to highlight the importance of the degree of substitution
between clean and dirty energy inputs as well as questions on the importance of the
exhaustibility of resources. If perfect substitution were a real possibility, policy
options would be more easily decided than when this is not the case. Take for
example the case of renewable energy that uses clean technologies versus nonre-
newable energy (fossil fuels). In this case, certain types of analysis may be mis-
leading if they are based on the assumption that both sources of energy are perfect
substitutes. It is clear that in the real world perfect substitution is not the correct
assumption as renewable energy cannot be stored. Unfortunately, some policy
measures have been adopted without taking into account these two facts and may
explain some of the policy failures.
Another important question for energy policy has to do with dif culties that

appear when the policy maker tries to in uence the path of technological change

using different instruments at hand. As we mentioned earlier, this objective is
dif

cult and complex and confronts much uncertainty as to whether the main

in uence of technological change takes place in the longer term. This uncertainty

about long-term consequences contributes to the dif culty for agreeing on energy

policy.