Capital Sunk, Emissions Locked: The Economics of Energy Transitions under Carbon Constraints

Michel Moreaux, Jean-Pierre Amigues and Manh-Hung Nguyen

No 26--1721, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: Optimal energy transitions are characterized in an economy where fossil energy requires dedicated conversion capital that is costly to reverse and where cumulative emissions are capped by an exogenous carbon budget. Short-run complementarity between fossil inputs and sector-specific capital interacts with intertemporal scarcity of the remaining budget. The optimal path typically selects an expansion regime, a production plateau, a decline regime, and a post-fossil steady state. The plateau is pinned down by the need to operate in order to amortize sunk conversion capital while the shadow value of remaining emissions rises over time. These forces generate non-monotone useful-energy prices and deliver sharp conditions under which dedicated fossil capital becomes stranded.

Keywords: Carbon constraint; Nonrenewable resources; Renewable resources; Energy transition; Hotelling rule (search for similar items in EconPapers)
JEL-codes: E22 Q00 Q32 Q43 Q54 (search for similar items in EconPapers)
Date: 2026-02
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:131485

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