Option values of low carbon technologies policies

How to combine irreversibility effect and learning-by-doing in decisions?

Abstract : in this paper we analyze the development and deployment of largescale low carbon technologies. We first review several issues at stake for the development of a technology still in infancy and characterized by major learning effects. Then we develop an analytical model to analyze the interrelation between irreversible investments and learning effects within a context of uncertainty. Whereas the irreversibility effect usually justifies limiting irreversible investment in a context of uncertainty, we show that this result can be reversed in presence of learning effects. Learning effects can justify the early development of a technology in order to have the technology ready to face intermediate objectives which will appear essential in order to reach CO2 emissions reductions targets.

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