Carbon Lock-In: The Role of Expectations

Gerard van der Meijden () and Sjak Smulders ()

No 14-100/VIII, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We argue that expectations about future energy use affect the transition from fossil to renewables, because of an interaction between innovation and resource scarcity. The paper presents a model of directed technical change to study this interaction. We find that fossil-saving technical change erodes the incentives to implement the renewables. Conversely, the anticipation of a transition to renewables diminishes the incentives to invest in fossil technology. As a result, two equilibria may arise, one with a transition to renewables and with low fossil efficiency, and one without renewables and with high fossil efficiency. Expectations determine which equilibrium arises in equilibrium.

Keywords: Directed technical change; energy transition; multiple equilibria (search for similar items in EconPapers)
JEL-codes: O30 Q32 Q42 Q55 (search for similar items in EconPapers)
Date: 2014-08-01, Revised 2016-07-14
New Economics Papers: this item is included in nep-ene and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20140100

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