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

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Author Info
Michael Grubb (EEP - Energy and Environmental Programme - Royal Institute of International Affairs)
Chapuis Thierry (CIRED - Centre international de recherche sur l'environnement et le développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales - Ecole Nationale des Ponts et Chaussées - Ecole Nationale du Génie Rural des Eaux et des Forêts)
Minh Ha-Duong () (CIRED - Centre international de recherche sur l'environnement et le développement - CIRAD : UMR56 - CNRS : UMR8568 - Ecole des Hautes Etudes en Sciences Sociales - Ecole Nationale des Ponts et Chaussées - Ecole Nationale du Génie Rural des Eaux et des Forêts)

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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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Paper provided by HAL in its series Post-Print with number halshs-00002455_v1.

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Date of creation: 1995
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Publication status: Published, Energy Policy, 1995, 23, 4/5, 417-432
Handle: RePEc:hal:journl:halshs-00002455_v1

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Related research
Keywords: climate policy; technological change;

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  1. Olivier Godard, 2005. "The precautionary principle. Between social norms and economic constructs," Working Papers hal-00243008_v1, HAL. [Downloadable!]
  2. Michael Toman, 1998. "Research Frontiers in the Economics of Climate Change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 11(3), pages 603-621, April. [Downloadable!] (restricted)
  3. Toman, Michael & Morgenstern, Richard & Anderson, John, 1998. "The Economics of "When" Flexibility in the Design of Greenhouse Gas Abatement Policies," Discussion Papers dp-99-38-rev, Resources For the Future. [Downloadable!]
  4. Leslie Shiell & Suzanne Loney, 2007. "Global Warming Damages and Canada's Oil Sands," Canadian Public Policy, University of Toronto Press, vol. 33(4), pages 419-440, December. [Downloadable!] (restricted)
  5. A. Patt, 1997. "Economists and Ecologists: Different Frames of Reference for Global Climate Change," Working Papers ir97056, International Institute for Applied Systems Analysis. [Downloadable!]
  6. Olivier Godard, 2007. "Climat et générations futures - Un examen critique du débat académique suscité par le Rapport Stern," Working Papers hal-00243059_v1, HAL. [Downloadable!]
  7. Corrado Maria & Edwin Werf, 2008. "Carbon leakage revisited: unilateral climate policy with directed technical change," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 39(2), pages 55-74, February. [Downloadable!] (restricted)
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  8. Michael Toman & Karen Palmer, 1997. "How should an accumulative toxic substance be banned?," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 9(1), pages 83-102, January. [Downloadable!] (restricted)
  9. Dennis Anderson, 1998. "On the Effects of Social and Economic Policies on Future Carbon Emissions," Mitigation and Adaptation Strategies for Global Change, Springer, vol. 3(2), pages 419-453, December. [Downloadable!] (restricted)
  10. Malte Schwoon & Richard S.J. Tol, 2004. "Optimal CO2-abatement with socio-economic inertia and induced technological change," Working Papers FNU-37, Research unit Sustainability and Global Change, Hamburg University, revised Jan 2004. [Downloadable!]
    Other versions:
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