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
Date Written: July 2007
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: Suggested Citation