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To Build or not to Build? Capital Stocks and Climate Policy

Elizabeth Baldwin (), Yongyang Cai () and Karlygash Kuralbayeva

No 204, OxCarre Working Papers from Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford

Abstract: Applying climate policy in practice means considering capital stocks: some assets will pro¬duce pollution whenever they are used, and some will not. Therefore long-term abatement plans should influence current investment. Moreover, newer technologies exhibit learning-by-doing in the deployment of associated infrastructure. We investigate these ideas from both theoretical and numerical perspectives. An increasing carbon tax will reduce investments in assets that pollute, and so reduce emissions in the short term: our “irreversibility effect†. We also show that the optimal innovation subsidy increases with the deployment rate: our “acceleration effect†. Considering second-best settings, we show that, although carbon taxes achieve stringent policy targets more efficiently, subsidies to the “renewables†sector deliver higher welfare when policy targets are more mild. Revised February 2019

Keywords: Infrastructure; Clean and Dirty Energy Inputs; Renewable Energy; Stranded Assets; Carbon Budget; Climate Change Policies; Green Paradox (search for similar items in EconPapers)
JEL-codes: O44 Q54 Q58 (search for similar items in EconPapers)
Date: 2019-02-19
New Economics Papers: this item is included in nep-ene and nep-env
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Citations: View citations in EconPapers (10) Track citations by RSS feed

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Working Paper: To Build or Not to Build? Capital Stocks and Climate Policy (2018) Downloads
Working Paper: To build or not to build? Capital stocks and climate policy (2018) Downloads
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