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The economics of changing course : Implications of adaptability and inertia for optimal climate policy

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  • Grubb, Michael
  • Chapuis, Thierry
  • Duong, Minh Ha

Abstract

This paper reviews evidence that energy technologies and systems adapt over time to accomodate external pressures: that technical innovation and systemic change in the energy sector is largely induced by need, and restrained by potentially large transitional costs. A simple integrated model of optimal greenhouse gas abatement over time is presented, in which the abatement cost depends on both fixed and transitional elements. It is shown that the optimal current response and long-run prospects differ radically between the classical economic case - in which the cost of a given cutback in emissions is fixed exogenously - and the adaptative case - in which the response is ultimately adaptative but heavily constrained by inertia (i.e. low fixed but high transitional costs). If energy systems are indeed to a large degree adaptive, the results demonstrate that as compared with the classical non-adaptive case: long-run stabilization of atmospheric CO2 may be optimal even with moderate damages from climate change; greater near-term abatement efforts are justified; and the cost of a given delay in response may be several times higher. Neglect of the issue of induced technical change and other adaptive responses may invalidate the policy implications drawn from most integrated assessment models developed to date.

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Bibliographic Info

Article provided by Elsevier in its journal Energy Policy.

Volume (Year): 23 (1995)
Issue (Month): 4-5 ()
Pages: 417-431

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Handle: RePEc:eee:enepol:v:23:y:1995:i:4-5:p:417-431

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  1. Peter Hoeller & Andrew Dean & Masahiro Hayafuji, 1992. "New Issues, New Results: The OECD's Second Survey of the Macroeconomic Costs of Reducing CO2 Emissions," OECD Economics Department Working Papers 123, OECD Publishing.
  2. Nordhaus, William D, 1991. "To Slow or Not to Slow: The Economics of the Greenhouse Effect," Economic Journal, Royal Economic Society, vol. 101(407), pages 920-37, July.
  3. Dermot Gately, 1993. "The Imperfect Price-Reversibility of World Oil Demand," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 163-182.
  4. Anderson, Dennis & Bird, Catherine D, 1992. "Carbon Accumulations and Technical Progress--A Simulation Study of Costs," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(1), pages 1-29, February.
  5. Bovenberg, A.L. & Smulders, S., 1993. "Environmental Quality and Pollution-Saving Technological Change in Two- Sector Endogenous Growth Model," Papers 9321, Tilburg - Center for Economic Research.
  6. Hourcade, Jean-Charles, 1993. "Modelling long-run scenarios : Methodology lessons from a prospective study on a low CO2 intensive country," Energy Policy, Elsevier, vol. 21(3), pages 309-326, March.
  7. Grubb, Michael, 1993. "Policy modelling for climate change : The missing models," Energy Policy, Elsevier, vol. 21(3), pages 203-208, March.
  8. I.O. Walker & Franz Wirl, 1993. "Irreversible Price-Induced Efficiency Improvements: Theory and Empirical Application to Road Transportation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 183-205.
  9. Ernst Berndt & Charles Kolstad & Jong-Kun Lee, 1993. "Measuring the Energy Efficiency and Productivity Impacts of Embodied Technical Change," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 33-56.
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