although the relative cost of individual policies in achieving reductions depends on parameter values and the emissions target in a numerical application to the us electricity sector fischer and newell state that the ranking by decreasing efficiencies is roughly as follows emissions price emissions performance standards fossil power tax renewables share requirement renewables subsidy and rd subsidy the presence of knowledge spillovers means that separate policy instruments are necessary to optimally correct the climate externality and the externalities for both learning and rd in fact we find that an optimal portfolio of policies can achieve emissions reductions at a significantly lower cost than any single policy although the emissions reductions continue to be attributed primarily with the emissions price the model has two periods there is a knowledge stock which increases in period as a function of both rd expenditures and output of re technologies in period