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Energy Transition Under Irreversibility: A Two-Sector Approach

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  • Prudence Dato

    () (IREGE, University of Savoie)

Abstract

This paper analyses the optimal energy transition of a two-sector economy (energy and final goods) under irreversible environmental catastrophe. First, it proposes a general appraisal of optimal switching problems related to energy transition showing: (1) the possibility of a catastrophe due to accumulation of pollution; and (2) technological regimes with the adoption of renewable energy. Second, it numerically shows that for given baseline parameter values, the most profitable energy transition path may correspond to the one in which the economy starts using both resources, crosses the pollution threshold by losing a part of its capital, and never adopts only clean energy. Third, it extends the model to allow for additional investment in energy saving technologies. We then find that this additional investment favours full transition to the sole use of renewable energy. It is then profitable to take advantage of these synergies by jointly promoting deployment of clean energy and providing incentives for investment in energy saving technologies.

Suggested Citation

  • Prudence Dato, 2017. "Energy Transition Under Irreversibility: A Two-Sector Approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 68(3), pages 797-820, November.
  • Handle: RePEc:kap:enreec:v:68:y:2017:i:3:d:10.1007_s10640-016-0053-z
    DOI: 10.1007/s10640-016-0053-z
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    Cited by:

    1. Prudence Dato, 2018. "Investment in Energy Efficiency, Adoption of Renewable Energy and Household Behavior: Evidence from OECD Countries," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).

    More about this item

    Keywords

    Energy; Irreversibility; Pollution; Switch;

    JEL classification:

    • Q30 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - General
    • Q53 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Air Pollution; Water Pollution; Noise; Hazardous Waste; Solid Waste; Recycling
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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