Assessing and Ordering Investment in Polluting Fossil-fueled and Zero-carbon Capital

Oskar Lecuyer () and Adrien Vogt-Schilb

No 2014.02, Policy Papers from FAERE - French Association of Environmental and Resource Economists

Abstract: We study the transition from preexisting polluting fossil-fueled capital (coal power) to cleaner fossil-fueled capital (gas) and zero-carbon capital (renewable). We model exhaustible resources, irreversible investment, adjustment costs and a carbon budget; both fossil-fuel and renewable energy consumption are subject to capacity constraints. To smooth investment and spread costs, optimal investment in expensive renewable power may start before the cheaper fossil resources are exhausted. Gas power operates as a bridge technology between coal and renewable: it allows building less renewable at the beginning of the transition, moving some efforts from the short to the middle term. Finally, the popular criteria of the levelized cost of electricity is biased toward cheaper and lower-potential alternatives (gas instead of renewable) if computed against current prices. We provide numerical simulations of the European power sector based on the Commission’s energy roadmap to 2050.

Keywords: Climate change mitigation; Path dependence; Optimal timing; Dynamic efficiency; Early-scrapping (search for similar items in EconPapers)
JEL-codes: Q54 Q58 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2014-05
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Downloads: (external link)
http://www.faere.fr/pub/PolicyPapers/Lecuyer_Vogt-Schilb_FAERE_PP2014.02.pdf First version, 2014 (application/pdf)

Related works:
Working Paper: Assessing and Ordering Investment in Polluting Fossil-fueled and Zero-carbon Capital (2014)
Working Paper: Assessing and ordering investments in polluting fossil-fueled and zero-carbon capital (2013)
Working Paper: Assessing and ordering investments in polluting fossil-fueled and zero-carbon capital (2013)
Working Paper: Assessing and ordering investments in polluting fossil-fueled and zero-carbon capital (2013)
Working Paper: Assessing and ordering investments in polluting fossil-fueled and zero-carbon capital (2013)
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