Economic Growth and the Transition from Non-Renewable to Renewable Energy

34 Pages Posted: 3 Jul 2012 Last revised: 28 Oct 2015

See all articles by Alfred Greiner

Alfred Greiner

Bielefeld University - Department of Business Administration and Economics

Lars Grüne

University of Bayreuth - Mathematical Institute

Willi Semmler

The New School - Department of Economics; Universitaet Bielefeld; IIASA

Date Written: July 3, 2012

Abstract

The paper considers the transition of an economy from non-renewable to renewable energy. The Hotelling theorem suggests to extract a non-renewable resource in an optimal way such that the resource tends to be depleted when optimally extracted. Yet, it might not be reasonable to deplete non-renewable energy sources that create externalities such as CO2 emission and global warming. The resource theorem of Hotelling would imply too high a CO2 emission. The paper sets up a canonical growth model with damages in the household's welfare function and two energy sources -- non-renewable and renewable energy. We study when a transition to renewable energy can take place, and if it takes place before non-renewable energy is exhausted. A socially optimal solution is considered that takes into account the negative externality from the non-renewable energy. We also study of how the optimal solution can be mimicked in a market economy by policies using tax rates and subsidies. To solve the model version where preferences show a multiplicative effect of consumption and damages from CO2 emission, we use dynamic programming. For a simplified version, with additive arguments in preferences, we use Nonlinear Model Predictive Control to solve the model and study the transition to renewable energy.

Keywords: Global warming, renewable energy, economic growth

JEL Classification: Q43, Q54, O13

Suggested Citation

Greiner, Alfred and Grüne, Lars and Semmler, Willi, Economic Growth and the Transition from Non-Renewable to Renewable Energy (July 3, 2012). Available at SSRN: https://ssrn.com/abstract=2098707 or http://dx.doi.org/10.2139/ssrn.2098707

Alfred Greiner (Contact Author)

Bielefeld University - Department of Business Administration and Economics ( email )

P.O. Box 100131
Bielefeld, 33501
Germany
+49 521 106 4859 (Phone)
+49 521 106 67120 (Fax)

HOME PAGE: http://phoenix.wiwi.uni-bielefeld.de/lehrbereiche/vwl/wipol

Lars Grüne

University of Bayreuth - Mathematical Institute ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany

Willi Semmler

The New School - Department of Economics ( email )

65 Fifth Avenue
New York, NY 10003
United States

HOME PAGE: http://www.newschool.edu/nssr/faculty/?id=4e54-6b79-4e41-3d3d

Universitaet Bielefeld ( email )

Universitätsstraße 25
Bielefeld, NRW
Germany

IIASA ( email )

Schlossplatz 1
Laxenburg/Austria, A-2361
Austria

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