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Uncertain long-run emissions targets, CO2 price and global energy transition: a general equilibrium approach

Olivier Durand-Lasserve, Axel Pierru () and Yves Smeers ()
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Olivier Durand-Lasserve: Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium; IFP, Economics Department, Rueil- Malmaison, France.
Yves Smeers: Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium

No 2010027, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: 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 invest- ment 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

JEL-codes: C68 Q41 Q43 Q52 (search for similar items in EconPapers)
Date: 2010-06-01
New Economics Papers: this item is included in nep-ene and nep-env
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Related works:
Journal Article: Uncertain long-run emissions targets, CO2 price and global energy transition: A general equilibrium approach (2010) Downloads
Working Paper: Uncertain long-run emission targets, CO2 price and global energy transition: a general equilibrium approach (2010) Downloads
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