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

Christoph Heinzel

University of Heidelberg

Ralph Winkler

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

Date Written: November 18, 2010

Abstract

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

Heinzel, Christoph and Winkler, Ralph, Distorted Time Preferences and Time-to-Build in the Transition to a Low-Carbon Energy Industry (November 18, 2010). Environmental and Resource Economics, Vol. 49, pp. 217-241, 2011. Available at SSRN: https://ssrn.com/abstract=1711146

Christoph Heinzel

University of Heidelberg ( email )

Grabengasse 1
Heidelberg, 69117
Germany

Ralph Winkler (Contact Author)

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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