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Abandoning Fossil Fuel: How fast and how much?

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  • Rick Van der Ploeg
  • Armon Rezai

Abstract

Climate change must deal with two market failures, global warming and learning by doing in renewable use. The social optimum requires an aggressive renewables subsidy in the near term and a gradually rising carbon tax which falls in long run. As a result, more renewables are used relative to fossil fuel, there is an intermediate phase of simultaneous use, the carbonfree era is brought forward, more fossil fuel is locked up and global warming is lower. The optimal carbon tax is not a fixed proportion of world GDP. The climate externality is more severe than the learning by doing one. �

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Bibliographic Info

Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number OxCarre Research Paper 123.

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Date of creation: 09 Oct 2013
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Handle: RePEc:oxf:wpaper:oxcarre-research-paper-123

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Keywords: climate change; integrated assessment; Ramsey growth; carbon tax; renewables subsidy; learning by doing; directed technical change; multiplicative damages; additive damages;

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References

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  1. John Hassler & Per Krusell, 2012. "Economics and Climate Change: Integrated Assessment in a Multi-Region World," NBER Working Papers 17757, National Bureau of Economic Research, Inc.
  2. Ackerman, Frank & Stanton, Elizabeth A., 2011. "Climate risks and carbon prices: Revising the social cost of carbon," Economics Discussion Papers 2011-40, Kiel Institute for the World Economy.
  3. Lucas Bretschger & Sjak Smulders, 2007. "Sustainable Resource Use and Economic Dynamics," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 36(1), pages 1-13, January.
  4. Pierre-André Jouvet & Ingmar Schumacher, 2011. "Learning-by-doing and the Costs of a Backstop for Energy Transition and Sustainability," Working Papers hal-00637960, HAL.
  5. Shiell, Leslie & Lyssenko, Nikita, 2008. "Computing business-as-usual with a representative agent and a pollution externality," Journal of Economic Dynamics and Control, Elsevier, vol. 32(5), pages 1543-1568, May.
  6. Karp, Larry & Rezai, Armon, 2012. "The Political economy of environmental policy with overlapping generations," CUDARE Working Paper Series 1128, University of California at Berkeley, Department of Agricultural and Resource Economics and Policy.
  7. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2012. "The Environment and Directed Technical Change," American Economic Review, American Economic Association, vol. 102(1), pages 131-66, February.
  8. John Hassler & Per Krusell & Conny Olovsson, 2012. "Energy-Saving Technical Change," NBER Working Papers 18456, National Bureau of Economic Research, Inc.
  9. Armon Rezai & Duncan Foley & Lance Taylor, 2012. "Global warming and economic externalities," Economic Theory, Springer, vol. 49(2), pages 329-351, February.
  10. Linus Mattauch & Felix Creutzig & Ottmar Edenhofer, 2012. "Avoiding Carbon Lock-In: Policy Options for Advancing Structural Change," Working Papers 1, Department of Climate Change Economics, TU Berlin, revised Feb 2012.
  11. Sinn, Hans-Werner, 2008. "Public policies against global warming: A supply side approach," Munich Reprints in Economics 19638, University of Munich, Department of Economics.
  12. Armon Rezai, 2011. "The Opportunity Cost of Climate Policy: A Question of Reference," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(4), pages 885-903, December.
  13. Tsur, Yacov & Zemel, Amos, 2005. "Scarcity, growth and R&D," Journal of Environmental Economics and Management, Elsevier, vol. 49(3), pages 484-499, May.
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  15. Stokey, Nancy L, 1998. "Are There Limits to Growth?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(1), pages 1-31, February.
  16. John, A & Pecchenino, R, 1994. "An Overlapping Generations Model of Growth and the Environment," Economic Journal, Royal Economic Society, vol. 104(427), pages 1393-1410, November.
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Cited by:
  1. Armon Rezai & Rick Van der Ploeg, 2014. "Robustness of a Simple Rule for the Social Cost of Carbon," CESifo Working Paper Series 4703, CESifo Group Munich.
  2. Sjak Smulders & Michael Toman & Cees Withagen, 2014. "Growth Theory and "Green Growth"," OxCarre Working Papers 135, Oxford Centre for the Analysis of Resource Rich Economies, University of Oxford.

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