Figure 11.10: Relationship between learning investments and carbon prices

Notes: The figure illustrates cost relationships for new low-carbon technology as experience and scale build over time. Initially introduction is characterized by relatively high current costs and a very small market share, and requires a high unit rate for ‘learning investment’. With increasing scale and learning, costs move towards existing, higher-carbon sources, the costs of which may also be declining, but more slowly. Rising carbon prices over time bring forward the time when the new technology may be competitive without additional support, and may greatly magnify the economic returns from the initial learning investment.

Source: Adapted with author’s permission from Neuhoff (2004).