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On the Dynamics of Competing Energy Sources

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  • Tsur, Yacov
  • Zemel, Amos
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    Abstract

    We characterize the dynamics of energy markets in which energy is derived from polluting (fossil) and clean (solar) resources. The analysis is based on geometric optimal control considerations. An important feature of solar energy technologies is that their cost of supply is predominantly due to upfront investment in capital infrastructure (rather than to actual supply rate) and this feature has important implications for the market allocation outcome. In particular, it gives rise to a threshold behavior in that solar energy is adopted only when the price of fossil energy exceeds a certain threshold. Under this condition solar technologies will (eventually) dominate energy supply by driving fossil energy altogether out of the energy sector. A tax on fossil energy can have a substantial impact since it changes the threshold price. A quantity restriction (e.g., a cap on fossil energy) allows for the coexistence of clean and polluting energy technologies also in the long run, and its effect on the use of fossil energy is more moderate.

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    File URL: http://purl.umn.edu/93127
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    Bibliographic Info

    Paper provided by Hebrew University of Jerusalem, Department of Agricultural Economics and Management in its series Discussion Papers with number 93127.

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    Date of creation: 2009
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    Handle: RePEc:ags:huaedp:93127

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    Postal: Faculty of Agriculture, Food and Environmental Quality Sciences Hebrew University of Jerusalem, P.O. Box 12, Rehovot 76100
    Phone: 08-9481230
    Fax: 08-9466267
    Web page: http://departments.agri.huji.ac.il/economics/indexe.html
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    Related research

    Keywords: fossil and solar energy; characteristic curves; price thresholds; environmental regulation; Environmental Economics and Policy; Research and Development/Tech Change/Emerging Technologies; Research Methods/ Statistical Methods; Resource /Energy Economics and Policy;

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    Cited by:
    1. Amigues, Jean-Pierre & Ayong Le Kama, Alain & Chakravorty, Ujjayant & Moreaux, Michel, 2013. "Equilibrium Transitions from Non Renewable Energy to Renewable Energy under Capacity Constraints," TSE Working Papers 13-440, Toulouse School of Economics (TSE).
    2. Mark Kagan, 2012. "Climate Change Skepticism in the Face of Catastrophe," Tinbergen Institute Discussion Papers 12-112/VIII, Tinbergen Institute.
    3. Mark Kagan, 2012. "Climate Change Skepticism in the Face of Catastrophe," Tinbergen Institute Discussion Papers 12-112/VIII, Tinbergen Institute.

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