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Abatement Capital Accumulation and the Shadow Price of Carbon

Author

Listed:
  • Boris Le Hir
  • Aude Pommeret
  • Mathilde Salin

Abstract

Using a theoretical model calibrated for France with a cost-efficiency approach, we study the consequences for the shadow price of carbon when accounting for abatement capital accumulation. We find that the shadow price of the abatement capacity exhibits a non-monotonic path, which differs from the classical Hotelling rule that is followed by the carbon price. However, even if the growth rate of the latter only depends on the discount rate -and the hazard rate when the target is uncertain, its initial value is affected by the characteristics of the investment technology. We also investigate the dynamics of the investment in abatement after the carbon budget is reached. In the numerical application, we find that the optimal date of carbon neutrality lies between 2045 and 2053. Finally we show that decoupling technologies would be largely less costly than clean-up technologies, in particular once the carbon budget is met.

Suggested Citation

  • Boris Le Hir & Aude Pommeret & Mathilde Salin, 2025. "Abatement Capital Accumulation and the Shadow Price of Carbon," Annals of Economics and Statistics, GENES, issue 157, pages 63-88.
  • Handle: RePEc:adr:anecst:y:2025:i:157:p:63-88
    DOI: 10.2307/48820444
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    More about this item

    Keywords

    Carbon Value; Abatement Capital; Adjustment Costs; Carbon Budget Risk.;
    All these keywords.

    JEL classification:

    • Q5 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics
    • Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Adoption and Costs; Distributional Effects; Employment Effects
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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