Incentivizing Carbon Utilization Research

Policies to incentivize carbon capture and utilization need to be developed. Governments have used a number of approaches to stimulate innovation. These have primarily consisted of patents, grants, prizes, and tax incentives. Each method has particular strengths and weaknesses.

Patents, unlike the other incentives, impose the cost of new inventions upon the subsequent purchasers of those products rather than on the government’s budget. But they are typically preferred where the value of inventions is uncertain, since they reward inventors through subsequent market activity.

Grants provide resources to innovators while they are still in the development stage, and this can be particularly helpful to researchers with limited funds. Because grants are not contingent upon the success of the invention process, however, they do not award achievement, just effort.

Prizes are usually larger than direct subsidies, but they are, of course, less certain. This uncertainty can limit their usefulness for more risk averse, or less well-financed, innovators. Moreover, the government may not be able to calculate accurately the true value of the invention.

Tax credits can provide fairly immediate benefits, but their value requires that the innovators have current income against which to apply the credits. Because the value of tax credits derives from the amounts invested in the invention process, credits may work best where the ultimate value of an invention is hard to determine.

This review of these incentives suggests a number of considerations that inform the best incentive to fit a particular invention process. Considerations include the costs of each policy, the parties who will bear those costs, the circumstances in which each policy is most effective in stimulating innovation, and the timing of the benefit for the recipients.

The range of considerations suggests that governments can use different policies to best incentivize different research goals.