Uncertain long-run emissions targets, CO2 price and global energy transition: A general equilibrium approach
Axel Pierru () and
Energy Policy, 2010, vol. 38, issue 9, 5108-5122
The persistent uncertainty about mid-century CO2 emissions targets is likely to affect not only the technological choices that energy-producing firms will make in the future but also their current investment decisions. We illustrate this effect on CO2 price and global energy transition within a MERGE-type general-equilibrium model framework, by considering simple stochastic CO2 policy scenarios. In these scenarios, economic agents know that credible long-run CO2 emissions targets will be set in 2020, with two possible outcomes: either a "hard cap" or a "soft cap". Each scenario is characterized by the relative probabilities of both possible caps. We derive consistent stochastic trajectories--with two branches after 2020--for prices and quantities of energy commodities and CO2 emissions permits. The impact of uncertain long-run CO2 emissions targets on prices and technological trajectories is discussed. In addition, a simple marginal approach allows us to analyze the Hotelling rule with risk premia observed for certain scenarios.
Keywords: CO2; Uncertainty; Energy; transition (search for similar items in EconPapers)
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Working Paper: Uncertain long-run emissions targets, CO2 price and global energy transition: a general equilibrium approach (2010)
Working Paper: Uncertain long-run emission targets, CO2 price and global energy transition: a general equilibrium approach (2010)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:enepol:v:38:y:2010:i:9:p:5108-5122
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