How clean capital slows down disinvestment of carbon-intensive capital in the low-carbon transition

Wei Jin, Frederick (Rick) van der Ploeg and Lin Zhang

Journal of Economic Dynamics and Control, 2024, vol. 162, issue C

Abstract: This paper explores a novel mechanism through which transitions to a low-carbon economy can proceed smoothly without excessive disinvestment in carbon-intensive capital. The mechanism is analyzed in a Lucas-Uzawa green growth model with carbon-temperature dynamics. Due to the externalities associated with climate damages and learning by doing, insufficient resources are allocated towards investment in clean capital in the business-as-usual market economy. Without green subsidies to stimulate clean capital investment, pricing emissions to internalize the social cost of carbon causes disinvestment in carbon-intensive capital and increases the costs of low-carbon transitions. Pricing emissions and subsidizing clean investment yield a higher return on clean capital and boost clean capital accumulation. This curbs disinvestment in carbon-intensive capital and limits carbon emissions. This highlights the positive role of clean capital for smoothing low-carbon transitions.

Keywords: Green growth; Low-carbon transition; Carbon pricing; Learning-by-doing; Lucas-Uzawa growth model (search for similar items in EconPapers)
JEL-codes: C61 O13 O44 Q32 Q43 Q54 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:dyncon:v:162:y:2024:i:c:s0165188924000496

DOI: 10.1016/j.jedc.2024.104857

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