Capital Sunk, Emissions Locked: The Economics of Energy Transitions under Carbon Constraints

Michel Moreaux, Jean-Pierre Amigues and Manh-Hung Nguyen
Additional contact information
Michel Moreaux: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Jean-Pierre Amigues: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement
Manh-Hung Nguyen: TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - Comue de Toulouse - Communauté d'universités et établissements de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement

Working Papers from HAL

Abstract: Optimal energy transitions are characterized in an economy where fossil energy requires dedicated conversion capital that is costly to reverse and where cumulative emissions are capped by an exogenous carbon budget. Short-run complementarity between fossil inputs and sector-specific capital interacts with intertemporal scarcity of the remaining budget. The optimal path typically selects an expansion regime, a production plateau, a decline regime, and a post-fossil steady state. The plateau is pinned down by the need to operate in order to amortize sunk conversion capital while the shadow value of remaining emissions rises over time. These forces generate non-monotone useful-energy prices and deliver sharp conditions under which dedicated fossil capital becomes stranded. Calibrated to global energy data, the baseline features a plateau of about 42 years accounting for 48% of cumulative emissions. Delaying policy by 20 years lowers welfare by 1.8% and strands $287 bn in assets; a 40-year delay lowers welfare by 4.3% and strands $532 bn. When explicit carbon taxation is infeasible, quantity instruments approximate the tax allocation in the calibration: a capacity cap and an investment ban deliver welfare losses of 0.8% and 1.2%, respectively.

Keywords: Carbon constraint; Nonrenewable resources; Renewable resources; Energy transition; Hotelling rule (search for similar items in EconPapers)
Date: 2026-02-23
Note: View the original document on HAL open archive server: https://hal.science/hal-05522961v1
References: Add references at CitEc
Citations:

Downloads: (external link)
https://hal.science/hal-05522961v1/document (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-05522961

Access Statistics for this paper

More papers in Working Papers from HAL
Bibliographic data for series maintained by CCSD ().