Economic Growth and the Transition from Non-Renewable to Renewable Energy

Alfred Greiner, Willi Semmler and Lars Gruene
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Lars Gruene: Schwartz Center for Economic Policy Analysis (SCEPA), https://www.economicpolicyresearch.org

No 2012-4, SCEPA working paper series. from Schwartz Center for Economic Policy Analysis (SCEPA), The New School

Abstract: The paper considers the transition of an economy from non-renewable to renewable energy. The Hotelling theorem suggests to extract a non-renewable resource in an optimal way such that the resource tends to be depleted when optimally extracted. Yet,it might not be reasonable to deplete non-renewable energy sources that create externalities such as CO2 emission and global warming. The resource theorem of Hotelling would imply too high a CO2 emission. The paper sets up a canonical growth model with damages in the household's welfare function and two energy sources – non renewable and renewable energy. We study when a transition to renewable energy can take place, and if it takes place before non-renewable energy is exhausted. A socially optimal solution is considered that takes into account the negative externality from the non-renewable energy. We also study of how the optimal solution can be mimicked in a market economy by policies using tax rates and subsidies. To solve the model version where preferences show a multiplicative effect of consumption and damages from CO2 emission, we use dynamic programming. For a simplified version, with additive arguments in preferences, we use Nonlinear Model Predictive Control to solve the model and study the transition to renewable energy.

Keywords: Global warming; renewable energy; economic growth (search for similar items in EconPapers)
JEL-codes: O13 Q43 Q54 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2012-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Journal Article: Economic growth and the transition from non-renewable to renewable energy (2014)
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