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Promoting clean technologies under imperfect competition

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Author Info
Théophile T. Azomahou
Raouf Boucekkine
Phu Nguyen-Vanc

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Abstract

We develop a general equilibrium multi-sector vintage capital model with energy-saving technological progress and an explicit energy market to study the impact of investment subsidies on investment and output. Energy and capital are assumed to be complementary in the production process. New machines are less energy consuming and scrapping is endogenous. The intermediate inputs sector is modelled à la Dixit-Stiglitz (1977). Two polar market structures are considered for the energy market, free entry and natural monopoly. The impact of imperfect competition on the outcomes of the decentralized equilibria are deeply characterized. We identify an original paradox: adoption subsidies may induce a larger investment into cleaner technologies either under free entry or natural monopoly. However, larger diffusion rates do not necessarily mean lower energy consumption at equilibrium, which may explain certain empirical puzzles.

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Paper provided by Department of Economics, University of Glasgow in its series Working Papers with number 2009_06.

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Date of creation: Feb 2009
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Handle: RePEc:gla:glaewp:2009_06

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Related research
Keywords: Energy-saving technological progress; vintage capital; market imperfections; natural monopoly; investment subsidies;

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Find related papers by JEL classification:
O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
E22 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Capital; Investment; Capacity
Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

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