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Vintage capital and the diffusion of clean technologies

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  • Théophile T. Azomahou
  • Raouf Boucekkine
  • Phu Nguyen-Van

Abstract

We develop a general equilibrium vintage capital model with energy-saving technological progress and an explicit energy sector to study the impact of investment subsidies on equilibrium investment and output. Energy and capital are assumed to be complementary in the production process. New machines are less energy consuming and scrapping is endogenous. Two polar market structures are considered for the energy market, free entry and natural monopoly. First, it is shown that investment subsidies may induce a larger equilibrium investment into cleaner technologies either under free entry or natural monopoly. However in the latter case, this happens if and only if the average cost is decreasing fast enough. Second, larger diffusion rates do not necessarily mean lower energy consumption at equilibrium, which may explain certain empirical observations.

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File URL: http://hdl.handle.net/10.1111/j.1742-7363.2012.00191.x
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Bibliographic Info

Article provided by The International Society for Economic Theory in its journal International Journal of Economic Theory.

Volume (Year): 8 (2012)
Issue (Month): 3 (09)
Pages: 277-300

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Handle: RePEc:bla:ijethy:v:8:y:2012:i:3:p:277-300

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  1. de Groot, Henri L. F. & Verhoef, Erik T. & Nijkamp, Peter, 2001. "Energy saving by firms: decision-making, barriers and policies," Energy Economics, Elsevier, vol. 23(6), pages 717-740, November.
  2. Bjorner, Thomas Bue & Jensen, Henrik Holm, 2002. "Energy taxes, voluntary agreements and investment subsidies--a micro-panel analysis of the effect on Danish industrial companies' energy demand," Resource and Energy Economics, Elsevier, vol. 24(3), pages 229-249, June.
  3. Agustin, PEREZ-BARAHONA & Benteng, ZOU, 2004. "A comparative study of Energy Saving Technical Progress in a Vintage Capital Model," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 2004002, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  4. Henri L.F. de Groot & Peter Mulder & Daan P. van Soest, 2004. "Subsidizing the Adoption of Energy-Saving Technologies: Analyzing the Impact of Uncertainty, Learning and Maturation," Tinbergen Institute Discussion Papers 03-019/3, Tinbergen Institute.
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