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A Cost-Index Approach to Valuing Investment InFar Into The Future Environmental Technology
Molly K. Macauley, Jhih-Shyang Shih
RFF Discussion Paper 07-29 | June 2007
RESEARCH TOPICS:
Abstract
Governments investing in long-lead technology development programs face considerable uncertainty as to whether the investment eventually will “pay off” for the taxpayer. This paper offers a framework to inform long-lead technology investment. We extend the theory of quality-adjusted cost indices to develop a conceptually rigorous, but data parsimonious, means of estimating consumer benefits from a new technology. We apply this model to a possible future electricity generation technology, space solar power (SSP). The United States, Japan, and other governments have begun investing in SSP but lack the benefit of a relevant economic context for informed decisions. We frame and analyze the economic relationship between SSP and competing electricity generation technologies with respect to direct costs, environmental externalities, and reliability. We also explicitly incorporate uncertainty and consider differences in the resource endowments available to electricity markets by considering four distinct world geographic regions.
RELATED SUBTOPICS
Asia
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