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Vintage capital and the diffusion of clean technologies

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  • Théophile T. Azomahou
  • Raouf Boucekkine
  • Phu Nguyen-Van

Abstract

We develop a general equilibrium vintage capital model with energy-saving technological progress and an explicit energy sector to study the impact of investment subsidies on equilibrium 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. Two polar market structures are considered for the energy market, free entry and natural monopoly. First, it is shown that investment subsidies may induce a larger equilibrium investment into cleaner technologies either under free entry or natural monopoly. However in the latter case, this happens if and only if the average cost is decreasing fast enough. Second, larger diffusion rates do not necessarily mean lower energy consumption at equilibrium, which may explain certain empirical observations.
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  • Théophile T. Azomahou & Raouf Boucekkine & Phu Nguyen-Van, 2012. "Vintage capital and the diffusion of clean technologies," International Journal of Economic Theory, The International Society for Economic Theory, vol. 8(3), pages 277-300, September.
    • Handle: RePEc:bla:ijethy:v:8:y:2012:i:3:p:277-300
    DOI: j.1742-7363.2012.00191.x
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    1. Perez-Barahona, Agustin & Zou, Benteng, 2006. "A comparative study of energy saving technical progress in a vintage capital model," Resource and Energy Economics, Elsevier, vol. 28(2), pages 181-191, May.
    2. Segerstrom, Paul S, 2000. "The Long-Run Growth Effects of R&D Subsidies," Journal of Economic Growth, Springer, vol. 5(3), pages 277-305, September.
    3. Bjorner, Thomas Bue & Jensen, Henrik Holm, 2002. "Energy taxes, voluntary agreements and investment subsidies--a micro-panel analysis of the effect on Danish industrial companies' energy demand," Resource and Energy Economics, Elsevier, vol. 24(3), pages 229-249, June.
    4. Henri L.F. de Groot & Peter Mulder & Daan P. van Soest, 2004. "Subsidizing the Adoption of Energy-Saving Technologies: Analyzing the Impact of Uncertainty, Learning and Maturation," Tinbergen Institute Discussion Papers 03-019/3, Tinbergen Institute.
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    3. Steinbuks, Jevgenijs & Neuhoff, Karsten, 2014. "Assessing energy price induced improvements in efficiency of capital in OECD manufacturing industries," Journal of Environmental Economics and Management, Elsevier, vol. 68(2), pages 340-356.

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