The Role of Environmental and Technology Policies in the Transition to a Low-Carbon Energy Industry

CER-ETH - Center of Economic Research at ETH Zurich Working Paper No. 07/71

39 Pages Posted: 17 Jul 2007

See all articles by Christoph Heinzel

Christoph Heinzel

Heidelberg University

Ralph Winkler

University of Bern - Department of Economics; University of Bern - Oeschger Centre for Climate Change Research

Date Written: July 2007

Abstract

In a dynamic general equilibrium model we study the interplay between gradual and structural change in the transition to a low-carbon energy industry. We focus on the welfare-theoretic consequences of diverging social and private rates of time preference and a time-to-build feature in capital accumulation. Both features are particularly important in the transformation of energy systems. We show that only a combination of environmental and technology policies can achieve a socially optimal transition. We thus provide a new reason for environmental regulation to be complemented by technology policy such as a non-distortionary investment subsidy.

Keywords: environmental and technology policy, social vs. individual rates of time preference, time to build, gradual vs. structural technological change, energy industry

JEL Classification: H23, Q48, H43

Suggested Citation

Heinzel, Christoph and Winkler, Ralph, The Role of Environmental and Technology Policies in the Transition to a Low-Carbon Energy Industry (July 2007). CER-ETH - Center of Economic Research at ETH Zurich Working Paper No. 07/71. Available at SSRN: https://ssrn.com/abstract=1000903 or http://dx.doi.org/10.2139/ssrn.1000903

Christoph Heinzel (Contact Author)

Heidelberg University ( email )

Grabengasse 1
Heidelberg, 69117
Germany

Ralph Winkler

University of Bern - Department of Economics ( email )

Schanzeneckstrasse 1
Bern, 3001
Switzerland
+41 31 631 4508 (Phone)

HOME PAGE: http://www.ralph-winkler.de

University of Bern - Oeschger Centre for Climate Change Research ( email )

Zähringerstrasse 25
Bern, 3012
Switzerland

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