Avoiding Carbon Lock-In: Policy Options for Advancing Structural Change

Linus Mattauch, Felix S. Creutzig () and Ottmar Edenhofer ()

No 1, Working Papers from Department of Climate Change Economics, TU Berlin

Abstract: A major obstacle for the transformation to a low-carbon economy is the risk of a carbon lock-in: fossil fuel-based ('dirty') technologies dominate the market although their carbon-free ('clean') alternatives are dynamically more efficient. We study the interaction of learning-by-doing spillovers and the substitution elasticity between the clean and the dirty sector in an intertemporal general equilibrium model. We find that the substitution possibilities between the two sectors have an ambivalent effect: although a high substitution elasticity requires less aggressive mitigation policies than a low one, it creates a greater lock-in in the absence of regulation. The optimal policy response consists of a permanent carbon tax as well as a learning subsidy for clean technologies. A single policy instrument can also avoid high welfare losses, but a more stringent mitigation target can only be achieved at painful costs. We demonstrate that the policy implication of [Acemoglu et al. 2012] is limited in scope. Our numerical results also highlight that infrastructure provision is crucial to facilitate the low-carbon transformation.

Keywords: structural change; low-carbon economy; carbon lock-in; mitigation policies; learning-by-doing (search for similar items in EconPapers)
JEL-codes: O30 O38 Q54 Q55 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ene and nep-env
Date: 2012-02, Revised 2012-02
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Persistent link: http://EconPapers.repec.org/RePEc:ecc:wpaper:3

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