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Promoting clean technologies: The energy market structure crucially matters

Théophile T. Azomahou, Raouf Boucekkine and Phu Nguyen-Van
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Théophile T. Azomahou: UNU-MERIT, Maastricht University, The Netherlands

No 15, Working Papers from Development and Policies Research Center (DEPOCEN), Vietnam

Abstract: We develop a general equilibrium vintage capital model with embodied energy-saving technological progress and an explicit energy market to study the impact of investment subsidies on investment and output. Energy and capital are assumed to be complementary in the production process. New machines are less energy consuming and scrapping is endogenous. It is shown that the impact of investment subsidies heavily depends on the structure of the energy market, the mechanism explaining this outcome relying on the tight relationship between the lifetime of capital goods and energy prices via the scrapping conditions inherent to vintage models. In particular, under a free entry structure for the energy sector, investment subsidies boost investment, while the opposite result emerges under natural monopoly if increasing returns in the energy sector are not strong enough.

Keywords: Energy-saving technological progress; vintage capital; energy market; natural monopoly; investment subsidies (search for similar items in EconPapers)
JEL-codes: E22 O40 Q40 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2008
New Economics Papers: this item is included in nep-com, nep-dge, nep-ene, nep-env, nep-mac and nep-reg
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