Role of Fiscal Instruments in Promoting Low-carbon Technology Innovation


Many of the most promising low-carbon technologies currently have higher costs than fossil-fuel based technologies. It is only through incremental learning from research, development and deployment that these costs can be reduced. Government intervention in the innovation process through fiscal policy instruments can be useful in accelerating this process and catalysing early adoption. This GGKP working paper reviews the best practices associated with the choice and design of such instruments and identifies the main lessons learned from their implementation in the case of renewable energy.

The working paper provides an analytical framework that identifies the characteristics of drivers and barriers in the innovation of renewable energy technologies, the sequencing of various steps that are involved in promoting innovation, and various policy tools in the context of each barrier that help to accelerate the process and enhance the outcomes. The paper notes that the issue of design and implementation of fiscal policy measures for renewable energy technologies is complex and requires a nuanced, case-by-case approach.  Some broad conclusions can, however, be drawn from a review of the design and implementation of such measures.