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A model of technological breakthrough in the renewable energy sector

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  • Schmidt, Robert C.
  • Marschinski, Robert
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    Abstract

    Models with induced technological change in the energy sector often predict a gradual expansion of renewable energies, and a substantial share of fossil fuels remaining in the energy mix through the end of our century. However, there are historical examples where new products or technologies expanded rapidly and achieved a high output in a relatively short period of time. This paper explores the possibility of a 'technological breakthrough' in the renewable energy sector, using a partial equilibrium model of energy generation with endogenous R&D. Our results indicate, that due to increasing returns-to-scale, a multiplicity of equilibria can arise. In the model, two stable states can coexist, one characterized by a lower and one by higher supply of renewable energy. The transition from the low-output to the high-output equilibrium is characterized by a discontinuous rise in R&D activity and capacity investments in the renewable energy sector. The transition can be triggered by a rise in world energy demand, by a drop in the supply of fossil fuels, or by policy intervention. Under market conditions, the transition occurs later than in the social optimum. Hence, we identify a market failure related to path-dependence and technological lock-in, that can justify a strong policy intervention initially. Paradoxically, well-intended energy-saving policies can actually lead to higher emissions, as they reduce the incentives to invest in renewable energies by having a cushioning effect on the energy price. Hence, these policies should be supplemented by other instruments that restore the incentives to invest in renewable energies. Finally, we discuss the influence of monopoly power in the market for innovations. We show that market power can alleviate the problem of technological lock-in, but creates a new market failure that reduces static efficiency.

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    Bibliographic Info

    Article provided by Elsevier in its journal Ecological Economics.

    Volume (Year): 69 (2009)
    Issue (Month): 2 (December)
    Pages: 435-444

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    Handle: RePEc:eee:ecolec:v:69:y:2009:i:2:p:435-444

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    Web page: http://www.elsevier.com/locate/ecolecon

    Related research

    Keywords: Renewable energy Induced technological change Technological lock-in Path-dependence Energy sector;

    References

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    1. Janssen, Marco & de Vries, Bert, 1998. "The battle of perspectives: a multi-agent model with adaptive responses to climate change," Ecological Economics, Elsevier, vol. 26(1), pages 43-65, July.
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    Citations

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    Cited by:
    1. Lehmann, Paul & Gawel, Erik, 2011. "Why should support schemes for renewable electricity complement the EU emissions trading scheme?," UFZ Discussion Papers 5/2011, Helmholtz Centre for Environmental Research (UFZ), Division of Social Sciences (├ľKUS).
    2. Fischer, Carolyn & Preonas, Louis, 2010. "Combining Policies for Renewable Energy: Is the Whole Less Than the Sum of Its Parts?," International Review of Environmental and Resource Economics, now publishers, vol. 4(1), pages 51-92, June.
    3. Matthias Kalkuhl & Ottmar Edenhofer & Kai Lessmann, 2011. "Learning or Lock-in: Optimal Technology Policies to Support Mitigation," CESifo Working Paper Series 3422, CESifo Group Munich.
    4. Linus Mattauch & Felix Creutzig & Ottmar Edenhofer, 2012. "Avoiding Carbon Lock-In: Policy Options for Advancing Structural Change," Working Papers 1, Department of Climate Change Economics, TU Berlin, revised Feb 2012.
    5. Jean Charles Hourcade & Antonin Pottier & Etienne Espagne, 2011. "The environment and directed technical change : comment," Working Papers hal-00866435, HAL.
    6. Hritonenko, Natali & Yatsenko, Yuri, 2010. "Technological innovations, economic renovation, and anticipation effects," Journal of Mathematical Economics, Elsevier, vol. 46(6), pages 1064-1078, November.
    7. Pottier, Antonin & Hourcade, Jean-Charles & Espagne, Etienne, 2014. "Modelling the redirection of technical change: The pitfalls of incorporeal visions of the economy," Energy Economics, Elsevier, vol. 42(C), pages 213-218.
    8. Samuel Fankhauser & Cameron Hepburn & Jisung Park, 2011. "Combining multiple climate policy instruments: how not to do it," LSE Research Online Documents on Economics 37573, London School of Economics and Political Science, LSE Library.
    9. Jean Charles Hourcade & Antonin Pottier & Etienne Espagne, 2011. "The environment and directed technical change : comment," CIRED Working Papers hal-00866435, HAL.
    10. Samuel Fankhauser & Cameron Hepburn & Jisung Park, 2011. "Combining multiple climate policy instruments: how not to do it," Grantham Research Institute on Climate Change and the Environment Working Papers 38, Grantham Research Institute on Climate Change and the Environment.
    11. Jean-Charles Hourcade & Antonin Pottier & Etienne Espagne, 2011. "The Environment and Directed Technical Change: Comment," Working Papers 2011.95, Fondazione Eni Enrico Mattei.

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