The Fossil Episode

John Hassler and Hans-Werner Sinn

No 4016, CESifo Working Paper Series from CESifo

Abstract: We build a two-sector dynamic general equilibrium model with one-sided substitutability between fossil carbon and biocarbon. One shock only, the discovery of the technology to use fossil fuels, leads to a transition from an initial pre-industrial phase to three following phases: a pure fossil carbon phase, a mixed fossil and biocarbon phase and an absorbing biocarbon phase. The increased competition for biocarbon during phase 3 and 4 leads to increasing food prices. We provide closed form expressions for this price increase. Our calibration leads to a price increase of 40% if capital and labor are allowed to move to the biocarbon sector. Otherwise, the price increase is much higher. We also use the model to analyze the consequences of restrictions on using biocarbon as fuel. We show that such restrictions can lead to a substantially slower global warming due to an endogenous slowdown of fossil fuel extraction.

Keywords: hotelling rule; fossil carbon; biocarbon; transition phases; oil price; food price; global warming (search for similar items in EconPapers)
JEL-codes: O41 Q32 Q54 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The fossil episode (2016)
Working Paper: The fossil episode (2016)
Working Paper: The Fossile Episode (2012)
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