Comparing the Effectiveness of Low-Carbon Policies: A Technology Diffusion Approach

This paper studies the effectiveness of different policy instruments in accelerating the adoption of low-carbon technologies. Despite substantial declines in the costs of these technologies, diffusion remains uneven, driven by local economic conditions and policy environments. Using a modeling approach grounded in technology diffusion theory, the paper assesses how price-based (for example, carbon taxes and subsidies) and non-price-based (for example, mandates and regulatory requirements) instruments affect technology diffusion and carbon emissions across four East Asian economies. The analysis explicitly accounts for path dependence, learning, and technology uncertainty, factors often overlooked in standard models. The results highlight the importance of timing and policy sequencing: in the early stages of diffusion, price instruments may be less effective while non-price instruments can more successfully address coordination failures and subsequently enhance the impact of carbon pricing. The optimal policy combinations ultimately depend on the stage of technological maturity, initial technology adoption patterns, and local conditions.