Energy-Saving Technology Adoptation under Uncertainty in the Residential Sector

Dorothée CHARLIER (), Alejandro Mosiño () and Aude POMMERET

Annales d'Economie et de Statistique, 2011, issue 103-104, pages 43-70

Abstract: Home renovation is generally asserted to be a highly effective means for households to lower expenditures on energy. In this sense, home renovation can also be thought as a means to reduce GHG emissions. In this paper we consider a homeowner who makes an irreversible energy-saving investment in an uncertain environment. In a general equilibrium framework, we solve the program of a representative consumer who uses his wealth to invest in the energy-saving technology, to save or to consume energy goods and non-energy goods. Resolution is analytical in a zero discounting case and numerical for the general case, based on collocation and Chebyshev polynomials. In particular, we show that the usual explanation of the energy paradox based on the existence of an option value in partial equilibrium is no longer valid when the analysis is extended to a general equilibrium framework.

Date: 2011
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