Abandoning Fossil Fuel: How Fast and How Much

29 Pages Posted: 7 Dec 2017

See all articles by Armon Rezai

Armon Rezai

Vienna University of Economics and Business

Rick van der Ploeg

University of Oxford

Date Written: December 2017

Abstract

Keeping climate change within limits requires that most of the available carbon‐based energy sources need to be abandoned underground. We study how fast and how much this transition to carbon‐free energy needs to occur within a welfare‐maximizing Ramsey growth model of climate change. Our model also addresses the market failure in the development of clean energy which leads to an under‐provision of renewable energy, delays the transition time to the carbon‐free era and reduces the amount of dirty fuels locked up in situ. Optimal policy requires an aggressive renewables subsidy in the near term and a gradually rising carbon tax which falls in long run. We also study the transition timing and the performance of recently proposed policy rules for the carbon tax.

Suggested Citation

Rezai, Armon and van der Ploeg, Frederick, Abandoning Fossil Fuel: How Fast and How Much (December 2017). The Manchester School, Vol. 85, pp. e16-e44, 2017, Available at SSRN: https://ssrn.com/abstract=3083227 or http://dx.doi.org/10.1111/manc.12189

Armon Rezai (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Frederick Van der Ploeg

University of Oxford ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

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