Abstract
The deployment of clean technologies in hard-to-abate sectors is often hindered by high costs and investment risks. Carbon Contracts for Difference (CCfDs) have emerged to mitigate these risks, yet their design raises a central question: should support for competing clean technologies be technology-neutral or technology-specific?
We study this question in a setting with two substitutable abatement technologies subject to technology-specific wedges between private and social costs, as well as cost shocks observed by firms but not by the regulator when policy is set. We compare uniform and technology-specific versions of price and quantity instruments. In a quadratic model, technology neutrality distorts the allocation whenever private–social cost wedges differ across technologies, while a neutral quota allows firms to reallocate deployment in response to realized relative costs. A common quota combined with technology-specific subsidies corrects the wedges while preserving this flexibility and therefore outperforms separate technology-specific quotas.
The welfare gain from discrimination increases with substitutability between technologies. We micro-found aggregate costs using a distribution of heterogeneous production sites and apply the model to green and blue hydrogen in Europe. In this setting, the value of discrimination depends on the mass of sites near the adoption and technology-choice frontiers. Numerical simulations confirm that targeted support can generate substantial welfare gains. They show that, beyond the quadratic benchmark, the gains from discrimination may differ between price and quantity instruments because prices allow cost shocks to affect total deployment.
These results highlight the value of combining technology-neutral competition with targeted corrections of technology-specific market failures.
Keywords: Carbon Contracts for Difference; Technology Neutrality; Investment Risk; Policy Instrument
Design; Hydrogen
