Editing IPCC:AR6/WGIII/Chapter-16 (section)

==== 16.2.3.4 Market Failures in Directing Technological Change ====

<div id="h3-12-siblings" class="h3-siblings"></div>

Market forces alone cannot deliver Pareto optimal (i.e., social) efficiency due to at least two types of externalities: GHG emissions that cause climate damage; and knowledge spillovers that benefit firms other than the inventor. [[#Nordhaus--2011|Nordhaus (2011)]] argues that these two problems would have to be tackled separately: once the favourable intellectual property right regimes (i.e., the laws or rules or regulation on protection and enforcement) are in place, a price on carbon that corrects the emission externality is sufficient to induce optimal level of green technological change. [[#Acemoglu--2012|Acemoglu et al. (2012)]] demonstrates that subsidising clean technologies (and not dirty ones) is also necessary to break the lock-in of dirty technological change. Recommendations for technical changes are often based on climate considerations only and neglect secondary externalities and environmental costs of technology choices (such as loss of biodiversity due to inappropriate scale-up of bioenergy use). The scale of adverse side effects and co-benefits varies considerably between low-carbon technologies in the energy sector ( [[#Luderer--2019|Luderer et al. 2019]] ).

<div id="16.2.4" class="h2-container"></div>

<span id="representation-of-the-innovation-process-in-modelled-decarbonisation-pathways"></span>