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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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  1. Hassler, John & Krusell, Per, 2012. "Economics and Climate Change: Integrated Assessment in a Multi-Region World," CEPR Discussion Papers 8771, C.E.P.R. Discussion Papers.
  2. 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.
  3. 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.
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  11. 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.
  12. 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.
  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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