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Do We Still Need Carbon-Intensive Capital When Transitioning to a Green Economy?

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

No 8745, CESifo Working Paper Series from CESifo

Abstract: This paper presents a two-sector green endogenous growth model to explore a mechanism that explains why carbon-intensive capital is not necessarily shut down during transition to a green economy. Without accumulating clean capital to offset carbon emissions, a tightening of climate regulation leads to the running down of carbon-intensive capital. However, if climate regulations induce stepping-up of carbon-free capital to offset warming damages, the economic value of carbon-intensive capital can be protected and the running down of carbon-intensive assets can be mitigated. The use of carbon-intensive capital gives the economic means to enhance clean capital accumulation and sustain endogenous growth. Both carbon-intensive and carbon-free capital may thus be needed for an efficient transition to green growth.

Keywords: endogenous growth; green growth; two-sector growth model; climate policy (search for similar items in EconPapers)
JEL-codes: C61 O13 O44 Q32 Q43 Q54 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-agr, nep-ene and nep-env
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