NEW TECHNOLOGIES FOR A LOW- CARBON ECONOMY - The Climate Casino - page 286

National Science Foundation and the Department of Energy to support
these activities.
For low-carbon technologies to move beyond the laboratories and
into the marketplace requires funding from the profi t-oriented fi rms
that develop new products and processes to increase their profi ts.
One of the most diffi cult challenges is how to motivate the private
sector to invest in low-carbon technologies. The main problem is that
business investments in low-carbon innovation are inhibited by a dou-
ble externality. The fi rst externality is the fact, discussed above, that
innovators capture but a small fraction of the social returns on inno-
vation. The second hurdle is the environmental externality of global
warming in the absence of a price on carbon emissions. In other words,
investments in low-carbon technologies are depressed because the pri-
vate returns on innovation are below the social returns, and private
returns are further depressed because the market price of carbon is
below its true social cost. The net effect is to doubly discourage profi t-
oriented R&D in low-carbon technologies.
A specifi c example will clarify the problem. One technology that
defi nitely would not be profi table in a world without CO 2 -limiting poli-
cies is CCS. Recall from the earlier description that this technology uses
costly processes to capture CO 2 emissions and store them in a safe place
where they can be sealed off for a century or more. Current estimates,
based on data from several large demonstration projects, suggest that a
large CCS plant could capture and sequester CO 2 at about $50 per ton. 12
If the price of CO 2 is zero, then the plant would lose money. No profi t-
oriented company would invest in this process if it knew the price of
CO 2 would be zero forever.
Now suppose that a fi rm thought that countries were going to
implement a tough global warming policy—one in which the price of
carbon would rise to $100 per ton in a few years. At that price, busi-
nesses estimate that a CCS plant would be profi table because in effect it
would be producing CO 2 at $50 per ton of CO 2 and selling it at $100 a
ton. Firms would proceed cautiously, looking at different approaches,
but they would have economic reasons to invest in this technology. This