Distorted Time Preferences and Time-to-Build in the Transition to a Low-Carbon Energy Industry
33 Pages Posted: 19 Nov 2010 Last revised: 26 May 2014
Date Written: November 18, 2010
We study the welfare-theoretic consequences of diverging social and private time-preference rates and time-to-build for the transition to a low-carbon energy industry. We show that time-to-build, a prevalent characteristic of capital accumulation in the energy sector, amplifies the distortion induced by the split discount rates. Thus, these two characteristics create in a mutually reinforcing way less favorable circumstances for the introduction of new clean energy technologies as compared to the social optimum, even if welfare losses from emissions are internalized. We discuss resulting policy implications with particular emphasis on the energy sector.
Keywords: Discounting, Distorted Time Preferences, Energy Industry, Environmental And Technology Policy, Technological Transition, Time-to-Build
JEL Classification: Q48, H23, H43
Suggested Citation: Suggested Citation