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Energy substitutability and modernization of energy-consuming technologies

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  • Hritonenko, Natali
  • Yatsenko, Yuri

Abstract

The paper examines long-term strategies of capital modernization under different assumptions about embodied technological change, energy regulation, and substitutability between energy and capital. To describe modernization of physical capital, the authors use a vintage capital model with the constant elasticity of substitution between capital and energy. The models take into account (i) availability of new more energy-efficient equipment under energy-saving technical progress, (ii) possibility of buying new capital with various combinations of energy parameters and prices, (iii) controlled scrapping of obsolete capital, and (iv) energy regulation quotas. The paper analyzes how the elasticity of substitution between capital and energy impacts the capital modernization policy. In particular, it is proven that the optimal lifetime of capital appears to be longer for a larger elasticity.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Economics.

Volume (Year): 34 (2012)
Issue (Month): 5 ()
Pages: 1548-1556

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Handle: RePEc:eee:eneeco:v:34:y:2012:i:5:p:1548-1556

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

Related research

Keywords: Elasticity of substitution between capital and energy; CES; Vintage capital; Endogenous capital lifetime; Energy consumption; Environmental pollution;

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References

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  1. 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).
  2. Robert J. Barro & Rachel McCleary, 2003. "Religion and Economic Growth," NBER Working Papers 9682, National Bureau of Economic Research, Inc.
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  4. Boyan Jovanovic & Peter L. Rousseau, 2002. "Moore's Law and Learning-By-Doing," NBER Working Papers 8762, National Bureau of Economic Research, Inc.
  5. van Zon, Adriaan & Yetkiner, I. Hakan, 2003. "An endogenous growth model with embodied energy-saving technical change," Resource and Energy Economics, Elsevier, vol. 25(1), pages 81-103, February.
  6. Yazid Dissou & Reza Ghazal, 2010. "Energy Substitutability in Canadian Manufacturing Econometric Estimation with Bootstrap Confidence Intervals," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 121-148.
  7. Daron Acemoglu, 2010. "When Does Labor Scarcity Encourage Innovation?," Journal of Political Economy, University of Chicago Press, vol. 118(6), pages 1037 - 1078.
  8. Boucekkine, Raouf & Pommeret, Aude, 2004. "Energy saving technical progress and optimal capital stock: the role of embodiment," Economic Modelling, Elsevier, vol. 21(3), pages 429-444, May.
  9. Boyan Jovanovic, 1998. "Vintage Capital and Inequality," NBER Working Papers 6416, National Bureau of Economic Research, Inc.
  10. Simon Gilchrist & John C. Williams, 1998. "Putty-Clay and Investment: A Business Cycle Analysis," NBER Working Papers 6812, National Bureau of Economic Research, Inc.
  11. Raouf Boucekkine & Marc Germain & Omar Licandro, . "Replacement echoes in the vintage capital growth model," Working Papers 96-16, FEDEA.
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  13. Kuper, Gerard H. & van Soest, Daan P., 2003. "Path-dependency and input substitution: implications for energy policy modelling," Energy Economics, Elsevier, vol. 25(4), pages 397-407, July.
  14. Chao Wei, 2003. "Energy, the Stock Market, and the Putty-Clay Investment Model," American Economic Review, American Economic Association, vol. 93(1), pages 311-323, March.
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  16. Mulder, Peter & de Groot, Henri L. F. & Hofkes, Marjan W., 2003. "Explaining slow diffusion of energy-saving technologies; a vintage model with returns to diversity and learning-by-using," Resource and Energy Economics, Elsevier, vol. 25(1), pages 105-126, February.
  17. Kuper, Gerard H., 1996. "The effects of energy taxes on productivity and employment: The case of the Netherlands," Resource and Energy Economics, Elsevier, vol. 18(2), pages 137-159, June.
  18. Judd, Kenneth L. & Guu, Sy-Ming, 1997. "Asymptotic methods for aggregate growth models," Journal of Economic Dynamics and Control, Elsevier, vol. 21(6), pages 1025-1042, June.
  19. van Hilten, Onno, 1991. "The optimal lifetime of capital equipment," Journal of Economic Theory, Elsevier, vol. 55(2), pages 449-454, December.
  20. Robert J. Barro & Xavier Sala-i-Martin, 2003. "Economic Growth, 2nd Edition," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262025531, December.
  21. Hritonenko, Natali & Yatsenko, Yuri, 2010. "Technological innovations, economic renovation, and anticipation effects," Journal of Mathematical Economics, Elsevier, vol. 46(6), pages 1064-1078, November.
  22. Sakellaris, Plutarchos, 1997. "Irreversible Capital and the Stock Market Response to Shocks in Profitability," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 38(2), pages 351-79, May.
  23. repec:cor:louvrp:1275 is not listed on IDEAS
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