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Imperfect resource substitution and optimal transition to clean technologies

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  • VARDAR, N. Baris

    ()
    (Paris School of Economics)

Abstract

Non-renewable and renewable resources are imperfect substitutes due to technical and geographical constraints. What is the role of imperfect substitution on the optimal transition path to the clean technologies? We address this question by characterizing the optimal growth path and resource use of an economy. We show that the economy initially starts with using the non-renewable and renewable resources simultaneously and gradually increases the share of renewable. The outcome can be either (i) the economy switches to a backstop at a certain date or (ii) the initial regime lasts forever. The results show that the economy converges to a steady state even if the backstop is too costly and a green, zero-carbon economy is the optimal final state in any case. We also present some simulation results to illustrate the shapes of the optimal paths. This analysis allows us to discuss the policy implications and question the existence of the Green Paradox.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2013072.

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Date of creation: 31 Dec 2013
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Handle: RePEc:cor:louvco:2013072

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Keywords: imperfect substitution; optimal transition; non-renewable resource; renewable resource; backstop; simultaneous use; switching; Green Paradox;

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References

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  1. Gilles Lafforgue & Bertrand Magne & Michel Moreaux, 2008. "Energy substitutions, climate change and carbon sinks," Working Papers 21821, Institut National de la Recherche Agronomique, France.
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Cited by:
  1. LAMAS, ALEJANDRO & CHEVALIER, Philippe, 2013. "Jumping the hurdles for collaboration: fairness in operations pooling in the absence of transfer payments," CORE Discussion Papers 2013073, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. MADANI, Mehdi & VAN VYVE, Mathieu, 2013. "A new formulation of the European day-ahead electricity market problem and its algorithmic consequences," CORE Discussion Papers 2013074, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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