Subsidizing cleantech innovation creates innovation snowballing and will lock it in against dirtytech

//DH

But, governments only need to disproportionately subsidize cleantech innovation until the productivity gap between cleantech and dirtytech knowledge stocks is closed. Once the system reaches this technology tipping point, cleantech innovation will be more productive and more profitable than dirtytech innovation, meaning that innovation blocks will begin flowing to cleantech without additional government support. Thus, in contrast to a tax on carbon or an innovation subsidy for spillovers, which should be maintained in perpetuity, innovation snowballing can be addressed by a large, but temporary, government investment in cleantech R&D.

Path dependency also has implications for the timing of carbon prices. The social costs of a carbon price are high in the near term when dirtytech is cheaper than cleantech.123 But, as cleantech innovation—with the support of government funding—accelerates and surpasses dirtytech innovation, the cost differences between the two will decline and ultimately reverse. Thus, with the right cleantech innovation policy, emission reductions will cost less in the future than they do today, suggesting value in deferring some emissions reductions by deferring some of the carbon tax increase. This logic argues for cleantech subsidies and carbon taxes that fall and rise, respectively, over time.124 Under Acemoglu’s optimal path, for example, nearly all cleantech subsidization occurs within the next five decades, while carbon prices steadily increase over the next 130 years.125