Time Scales of the Low-Carbon Transition: A Data-Driven Dynamic Multi-Sector Growth Model

Vallès Codina Oriol () and Semmler Willi ()
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Vallès Codina Oriol: Department of Economics, 150402 University of Leeds, Leeds University Business School , Maurice Keyworth Building, Leeds, LS2 9JT, UK
Semmler Willi: 372835 New School for Social Research Department of Economics , New York, NY, USA

Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), 2024, vol. 244, issue 3, 169-200

Abstract: This paper employs a dynamic multi-sector growth model with changing technology to study the relevance of the price and quantity dimensions involved in the technical substitution of carbon-intensive technology, that is, the low-carbon transition. For the framing of the transition, the stylized market dynamics by Flaschel and Semmler (1987. “Classical and Neoclassical Competitive Adjustment Processes.” The Manchester School 55 (1): 13–37) are used, who propose a cross-dual out-of-equilibrium adjustment process. The major empirical challenge to identify the adjustment speed for quantities and prices is to empirically estimate sector-specific adjustment coefficients. The transition speed is estimated for seven carbon-intensive sectors in six high-income economies (Germany, France, Italy, Netherlands, Japan, and the US) using a mixed-effects varying-slopes model on EU KLEMS data. Directed technical change is enforced by a revenue-neutral, pro-active fiscal policy of a tax–subsidy form, which has the effect to greatly accelerate the phase-out of carbon-intensive technology and the phase-in of green technology. The speed of green substitution that allows decarbonization is then evaluated analytically and computationally along four policy and time dimensions: cost advantage, a percentage tax on carbon-intensive output, a green subsidy rate, and initial investment ratios. Though the tax itself has an impact on the speed of decarbonization, it is significantly improved by green subsidies and green investments. The cost advantage of the green over the carbon technology is shown to have a negligible impact on decarbonization speed by itself. Without ambitious fiscal policy, especially in the form of green investment support, this substitution process appears to be too slow to reach decarbonization in a timely manner.

Keywords: low-carbon transition; complex dynamical systems; cross-dual dynamics; structural change; fiscal policy; carbon pricing (search for similar items in EconPapers)
JEL-codes: C63 O25 O41 Q55 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:jns:jbstat:v:244:y:2024:i:3:p:169-200:n:4

DOI: 10.1515/jbnst-2023-0040

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