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Distorted Time Preferences and Time-to-Build in the Transition to a Low-Carbon Energy Industry

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  • Christoph Heinzel
  • Ralph Winkler

Abstract

We study the welfare-theoretic consequences of diverging social and private time-preference rates and time-to-build for the transition to a low-carbon energy industry. We show that time-to-build, a prevalent characteristic of capital accumulation in the energy sector, amplifies the distortion induced by the split discount rates. Thus, these two characteristics create in a mutually reinforcing way less favorable circumstances for the introduction of new clean energy technologies as compared to the social optimum, even if welfare losses from emissions are internalized. We discuss resulting policy implications with particular emphasis on the energy sector.
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  • Christoph Heinzel & Ralph Winkler, 2011. "Distorted Time Preferences and Time-to-Build in the Transition to a Low-Carbon Energy Industry," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(2), pages 217-241, June.
    • Handle: RePEc:kap:enreec:v:49:y:2011:i:2:p:217-241
    DOI: 10.1007/s10640-010-9431-0
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    Cited by:

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    2. Wenli Cheng & Dingsheng Zhang, 2021. "Optimal Environmental Tax-Subsidy Regime in the Presence of Increasing Returns," Annals of Economics and Finance, Society for AEF, vol. 22(2), pages 525-540, November.
    3. Nyambuu, Unurjargal & Semmler, Willi, 2020. "Climate change and the transition to a low carbon economy – Carbon targets and the carbon budget," Economic Modelling, Elsevier, vol. 84(C), pages 367-376.
    4. Greiner, Alfred & Gruene, Lars & Semmler, Willi, 2014. "Economic growth and the transition from non-renewable to renewable energy," Environment and Development Economics, Cambridge University Press, vol. 19(4), pages 417-439, August.
    5. Grischa Perino & Maximilian Willner, 2019. "Rushing the Impatient: Allowance Reserves and the Time Profile of Low-Carbon Investments," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 74(2), pages 845-863, October.
    6. Schneider, Maik T. & Traeger, Christian P. & Winkler, Ralph, 2012. "Trading off generations: Equity, discounting, and climate change," European Economic Review, Elsevier, vol. 56(8), pages 1621-1644.

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    More about this item

    Keywords

    Discounting; Distorted time preferences; Energy industry; Environmental and technology policy; Technological transition; Time-to-build; Q48; H23; H43;
    All these keywords.

    JEL classification:

    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

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