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Avoiding Carbon Lock-In: Policy Options for Advancing Structural Change

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  • Felix Creutzig

    (Department of Economics of Climate Change, TU Berlin)

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    Abstract

    A major obstacle for the transformation to a low-carbon economy is the risk of a carbon lock-in: fossil fuel-based ('dirty') technologies dominate the market although their carbon-free ('clean') alternatives are dynamically more efficient. We study the interaction of learning-by-doing spillovers and the substitution elasticity between the clean and the dirty sector in an intertemporal general equilibrium model. We find that the substitution possibilities between the two sectors have an ambivalent effect: although a high substitution elasticity requires less aggressive mitigation policies than a low one, it creates a greater lock-in in the absence of regulation. The optimal policy response consists of a permanent carbon tax as well as a learning subsidy for clean technologies. A single policy instrument can also avoid high welfare losses, but a more stringent mitigation target can only be achieved at painful costs. We demonstrate that the policy implication of [Acemoglu et al. 2012] is limited in scope. Our numerical results also highlight that infrastructure provision is crucial to facilitate the low-carbon transformation.

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    File URL: http://ideas.climatecon.tu-berlin.de/documents/wpaper/CLIMATECON-2012-03.pdf
    File Function: First version, 2012
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    Bibliographic Info

    Paper provided by Department of Climate Change Economics, TU Berlin in its series Working Papers with number 1.

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    Length: 23 pages
    Date of creation: Feb 2012
    Date of revision: Feb 2012
    Handle: RePEc:ecc:wpaper:4

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    Web page: http://www.climatecon.tu-berlin.de/

    Related research

    Keywords: urban form; mode choice; optimal public transit; fuel price;

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    1. Stéphanie Souche, 2010. "Measuring the structural determinants of urban travel demand," Post-Print halshs-00578019, HAL.
    2. Rainald Borck & Matthias Wrede, 2007. "Commuting Subsidies with two Transport Modes," CESifo Working Paper Series 1972, CESifo Group Munich.
    3. Sasaki, Komei, 1989. "Transportation system change and urban structure in two-transport mode setting," Journal of Urban Economics, Elsevier, vol. 25(3), pages 346-367, May.
    4. Glaeser, Edward L. & Kahn, Matthew E., 2010. "The greenness of cities: Carbon dioxide emissions and urban development," Journal of Urban Economics, Elsevier, vol. 67(3), pages 404-418, May.
    5. Creutzig, Felix & McGlynn, Emily & Minx, Jan & Edenhofer, Ottmar, 2011. "Climate policies for road transport revisited (I): Evaluation of the current framework," Energy Policy, Elsevier, vol. 39(5), pages 2396-2406, May.
    6. Karathodorou, Niovi & Graham, Daniel J. & Noland, Robert B., 2010. "Estimating the effect of urban density on fuel demand," Energy Economics, Elsevier, vol. 32(1), pages 86-92, January.
    7. Proost, Stef & Dender, Kurt Van, 2008. "Optimal urban transport pricing in the presence of congestion, economies of density and costly public funds," Transportation Research Part A: Policy and Practice, Elsevier, vol. 42(9), pages 1220-1230, November.
    8. Gusdorf, Francois & Hallegatte, Stephane, 2007. "Compact or spread-out cities: Urban planning, taxation, and the vulnerability to transportation shocks," Energy Policy, Elsevier, vol. 35(10), pages 4826-4838, October.
    9. Haring, Joseph E. & Slobko, Thomas & Chapman, Jeffrey, 1976. "The impact of alternative transportation systems on urban structure," Journal of Urban Economics, Elsevier, vol. 3(1), pages 14-30, January.
    10. Kim, Tschangho John, 1979. "Alternative transportation modes in an urban land use model: A general equilibrium approach," Journal of Urban Economics, Elsevier, vol. 6(2), pages 197-215, April.
    11. Fujita,Masahisa, 1991. "Urban Economic Theory," Cambridge Books, Cambridge University Press, number 9780521396455, December.
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