Technological innovation on a global scale will be needed to mitigate global climate change. To significantly reduce emissions of carbon dioxide (CO₂) and other greenhouse gases (GHGs), three types of technological innovations are needed: (1) more efficient technologies that use less energy to deliver valuable services such as electricity and transportation; (2) technologies to expand the use of alternate energy sources with lower or zero GHG emissions, such as renewable energy (e.g., wind and solar); and (3) technologies to capture and sequester the CO₂ from fossil fuels before (or after) it enters the atmosphere, such as disposal in geologic formations. Technological change will be instrumental in reducing costs, widening applicability, and improving reliability in these three categories, and will be required to reduce emissions of the non-CO₂ GHGs as well.

The most effective way to bring about these innovations is through a combination of technology policy incentives that encourage climate-friendly technologies, and environmental policies such as a cap-and-trade program that limits GHG emissions. Lessons learned from the United States’ rich experience with technology and innovation policies can be applied to GHG-reduction efforts, and include the following:

• A balanced policy portfolio must support not only research and development (R&D), but also promote diffusion of knowledge and deployment of new technologies: R&D, by itself, is not enough.
• Support for education and training should supplement research funding.
• Policies that do not directly promote technological innovation (i.e., “non-technology policies”) still provide critical signposts for prospective innovators by indicating technological directions likely to be favored by future markets.
• Policy-makers should channel funds for technology development and diffusion through multiple agencies and programs, because competition contributes to policy success.
• Public-private partnerships can foster helpful, ongoing collaborations.
• Effective programs require insulation from short-term political pressures.
• Regulatory and marketplace certainty help create favorable conditions for firms to invest in new climate-friendly technologies.
• Policy-makers must be prepared to tolerate some “failures” (i.e., investments that do not pay off), and learn from them as private sector entrepreneurs do.
• In light of the inherent uncertainty in innovation, government policies should generally support a suite of options rather than a specific technology or design.