Recent history shows that climate policies such as taxes, subsidies and mandates matter most by catalyzing a virtuous cycle of higher demand that leads to more innovation, learning-by-doing and economies of scale that lower costs and further boost demand. In solar power, the results have been spectacular. Between 1980 and 2012, the cost of a photovoltaic module made from crystalline silicon fell 96%. Roughly 30 percentage points of this is attributed to public and private research and development, which among other things, led to more efficient modules and larger, thinner silicon wafers. Another 60 points came from “learning-by-doing”—improvements to the manufacturing process, such as less waste, that came with experience—and economies of scale, reports The Wall Street Journal (Aug. 25, 2022). The average plant capacity grew roughly 200-fold.
Similar, though less dramatic, dynamics have been at work in wind power and battery storage. They all hewed to “Wright’s Law,” named for the 1930s aeronautical engineer Theodore Wright. In Module E, Learning Curves, we explain that each doubling of production is accompanied by a roughly constant percentage decline in cost, known as the learning rate. “Over the long term these learning rates appear to be the best way to predict the future cost of technology that we know of,” said one industry expert.
One implication is that as a technology matures, production takes longer to double and so costs fall more slowly. In solar power, for instance, PV module factories are now so large and the manufacturing process so efficient that incremental improvements are much harder to come by. Sure enough, the cost of solar-generated power has fallen an average of 6% annually from 2018 through 2021, compared with 21% in the previous nine years.
Greater potential lies in replicating the experience of solar in other technologies that are currently too costly for widespread adoption. Emission reductions in the coming decade are the low hanging fruit, achievable with technologies that are already competitive or nearly so with fossil fuels such as wind, solar and batteries. Getting the rest of the way to net zero depends on hard-to-decarbonize sectors such as aviation, industrial processes and agriculture for which commercially viable technology to eliminate emissions doesn’t yet exist.
Classroom discussion questions:
- Where were learning curves first applied? (See Table E.1 in your Heizer/Render/Munson text)
- Why do costs fall more slowly as a product matures?