Subsidizing the adoption of energy-saving technologies; Analyzing the impact of uncertainty, learning and maturation

As part of the Kyoto Protocol, many countries have committed themselves to substantially reduce the emission of greenhouse gases within a politically imposed time constraint. Investment subsidies can be an important instrument to stimulate the adoption of energy-saving technologies to achieve emission reduction targets. This paper addresses the impact of adoption subsidies on the amount of energy savings, taking into account both the endogenous and uncertain nature of technological progress. Neglecting these two characteristics of technological progress tends to result in overestimation of the short-run effectiveness of investment subsidies, whereas the long-run effects are ambiguous.