Title page 1

Contents 1

Abstract 2

1. Introduction 4

2. Some stylized facts 6

3. Diffusion-Based Theory of Low-Carbon Technology 10

3.1. Two Time-Constraints: Construction of New Technology and Lifetime of Old Technology 11

3.2. Technology Cost Variability 12

3.3. Learning by doing: Global and local 14

3.4. Diffusion and path dependency 14

4. The effect of different policy instruments 16

4.1. The policies considered in this paper 16

4.2. Why may both price-based and non-price-based instruments be needed in practice? 16

4.3. Thailand case study: Initial shares influence policy efficacy 17

4.4. Indonesia case study: Long-term contracts inhibit transition 19

4.5. Viet Nam case study: Economic and political implications of alternative emission reduction policies 21

4.6. China case study: Setting global solar technology prices 24

5. Conclusion 25

References 27

Annex 30

Table 1. Key factors and policy implications affecting diffusions in FTT 15

Table 2. Solar share and power sector CO₂ reductions in 2050 for a different solar share starting point in 2023 18

Table 3. Policy magnitudes required to achieve the same cumulative emission reduction 21

Table 4. Economic Impacts of Power Sector Policies Across Stakeholders 23

Table 5. Main policies for the power sector in China 24

Figure 1. Global LCOE from newly commissioned renewable power technologies 2010 and 2023 6

Figure 2. Solar PV penetration, selected countries 7

Figure 3. Levelized Cost of Electricity by Technology in 2020 8

Figure 4. Carbon pricing and clean energy spending across countries 9

Figure 5. Diffusion of solar and the policy environment 10

Figure 6. Diffusion rate sensitivity (lifetime, construction time and ease of switching) 12

Figure 7. Binary discrete choice of technology adoption based on cost distributions (LHS) vs technology adoption based on homogenous costs 13

Figure 8. Coal, Solar, and Gas Share of Power Generation in 2050 Under Different Shortening Length of Coal Contract (% of Total) 20

Figure 9/Figure 8. CO₂ emission Reduction Profile in Viet Nam from Four Equivalent Policy Options 22

Figure 10/Figure 9. China Learning-by-Doing Spillovers to Rest of the World 25

Figure A. Power Sector CO₂ emissions in Thailand under different solar share starting point in 2023, Baseline vs Carbon Tax, mTCO₂ 30