Analysis Picking Winners: Modelling the Costs of Technology-specific Climate Policy in the U.S. Passenger Vehicle Sector Jacob Fox, Jonn Axsen ⁎, Mark Jaccard School of Resource and Environmental Management, Simon Fraser University, Burnaby, BC V5A 1S6, Canada abstract article info Article history: Received 30 November 2016 Received in revised form 28 February 2017 Accepted 2 March 2017 Available online xxxx Researchers debate the cost-effectiveness of technology-specific versus technology-neutral climate policies, but few quantify the differences. Using the case of low-carbon vehicle technologies in the US passenger vehicle sector (ethanol, plug-in electric and hydrogen), we develop a technology adoption simulation model that represents in- creasing returns to adoption in both financial costs and consumer preferences, representing uncertainty through Monte Carlo analysis. We compare the policy costs ($/tonne CO 2 out to 2050) of: i) a technology-neutral carbon tax, ii) a somewhat neutral vehicle standard requiring low carbon vehicle sales, but allowing competition among technologies, and iii) technology-specific vehicle standards requiring sales of just one technology. On average across simulations, the carbon tax is twice as cost-effective as the best vehicle standard, in part because the tax more substantially affects vehicle use rates. Among the vehicle standards, a technology-specific standard that se- lects the right “winner” (plug-in electric vehicles) is more cost-effective than the neutral standard, as it more quickly stimulates technology improvement. However, there is risk in a technology-specific approach; mistaken- ly forcing a “loser” technology (hydrogen) results in policy costs that are 2 to 5 times higher than other policies. Results can help policymakers trade-off the costs and risks of different climate policy options. © 2017 Elsevier B.V. All rights reserved. Keywords: Climate Policy Technology-neutral Technology-specific Low-carbon Vehicles Technology Adoption Model Simulation Model 1. Introduction 1.1. Technology-neutral versus Technology-specific Climate Policy This study uses a dynamic technology adoption model to explore the potential long-term cost-effectiveness of certain technology-neutral versus technology-specific climate policies, under technological uncer- tainty. We focus on the case of low-carbon fuel vehicle technology en- tering the US passenger vehicle sector, namely plug-in electric vehicles (PEVs), hydrogen fuel cell vehicles (HFCV), and biofuel vehicles (85% ethanol). These technologies have failed to substantively displace fossil fuels despite several decades of intermittent media hype, optimis- tic government goals and innovation activity—largely due to a lack of ef- fective climate policy (Melton et al., 2016). In the passenger vehicle sector, a more technology-specific climate policy would choose a “winner” (e.g. supporting only PEVs and PEV-re- lated infrastructure) whereas a more technology-neutral policy would address greenhouse gas emissions more broadly (e.g. a carbon tax), allowing market forces to determine the “winner” or combination of winners among low-carbon fuel technologies. Some economists argue that “technology-specific” climate policies are too costly or risky for so- ciety and thus should not play a significant role in climate abatement strategies (Jaffe et al., 2005; Nordhaus, 2010). The main reasoning be- hind this argument is that the policymaker is not well-equipped to choose the right low-carbon technology “winner”. Consider the exam- ple of a vehicle regulation that forces automakers to develop and sell PEVs. There is considerable uncertainty regarding future cost reductions in the technology, the evolution of consumer preferences, and the roll- out of recharging infrastructure. With imperfect information about the future, there is risk that a transition to PEVs might end up being more costly for society than a transition to another low-carbon technology, such as biofuel or hydrogen-fuel cell vehicles. According to neoclassical economic theory, technology-neutral policies instead allow firms and consumers to select the lowest-cost technologies, effectively moving so- ciety onto the lowest cost marginal abatement curve, that is, assuming that other market failures do not exist. In the transportation sector, a carbon tax also has an advantage in potentially prompting a wider vari- ety of abatement actions, including mode switching and decreased trav- el demand, in addition to switching to low carbon vehicle technologies. However, several researchers argue that technology-specific policies could play an important role in effective climate change mitigation, likely as a complement to carbon pricing (Azar and Sandén, 2011; Ecological Economics 137 (2017) 133–147 ⁎ Corresponding author. E-mail addresses: jacobfox1@gmail.com (J. Fox), jaxsen@sfu.ca (J. Axsen), jaccard@sfu.ca (M. Jaccard). http://dx.doi.org/10.1016/j.ecolecon.2017.03.002 0921-8009/© 2017 Elsevier B.V. All rights reserved. Contents lists available at ScienceDirect Ecological Economics journal homepage: www.elsevier.com/locate/ecolecon