Idea of the Day: Incentives to Spur Supply and Demand for New Technologies

October 1, 2009

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Promising innovations can languish “on the shelf” due to a lack of initial market demand. It takes time to build consumer familiarity with a new product or service, and often the first units off the assembly line have high marginal production costs because economies of scale have not yet been achieved. Public support during this phase is critical, and a host of tools are available to help incentivize demand at the outset—from direct government procurement to tax incentives or other subsidies for manufacturers, investors, and consumers. Good examples include:

• Production and investment tax credits for renewable energy
• Rebates for building owners who invest in efficiency improvements
• Performance-based incentives to reduce carbon emissions from existing fossil fuel resources such as carbon capture and sequestration

The federal government should extend these types of incentives and allocate adequate resources for promising new technologies. The initial cost to the Treasury will be far outweighed by the long-term economic benefits of developing new markets and standing up new industries. Financial support can be phased out over time as economies of scale increase, production costs go down, and the emerging technologies become more competitive. But the initial kick-start to spur demand through public support is critical.

For more on this topic, please see:

• The Clean-Energy Investment Agenda, by John Podesta, Kate Gordon, Bracken Hendricks, and Benjamin Goldstein.