Optimal climate policy with directed technical change, extensive margins and decreasing substitutability between clean and dirty energy

Anthony Wiskich

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: This paper uses a benchmark climate model with endogenous technical change to consider the effects of three extensions on optimal policy under a clean transition. First, the movement of workers between non-energy and energy sectors lowers the cost of abatement by more than an order of magnitude, favouring taxes over subsidies. Second, the free movement of researchers between non-energy and energy sectors increases the power of policy to avert environmental disaster and leads to a period of intense research in the clean sector above the long-run share, as productivity in the clean sector catches up to the non-energy sector. Third, a decreasing elasticity of substitution between clean and dirty inputs as the share of clean energy rises is considered, reflecting the increasing difficulty of integrating intermittent clean energy supply in electricity. A decreasing elasticity increases the initial optimal tax on dirty energy and therefore lowers the subsidies required to direct technical change towards clean energy.

Keywords: Climate change; directed technical change; optimal policy; energy (search for similar items in EconPapers)
JEL-codes: O33 O44 Q30 Q54 Q56 Q58 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2019-09
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env and nep-reg
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2019-70

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