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Market Structure and the Penetration of Alternative Energy Technologies

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  • Tsur, Yacov
  • Zemel, Amos

Abstract

Energy market prices ignore external effects, hence miss-allocate energy generation between (polluting) fossil fuels and (clean) solar technologies. Correcting the failure requires understanding the market allocation forces at hand. An important feature of solar energy is that its cost of supply is predominantly due to upfront investments in capital infrastructure (rather than to the actual supply rate) and this feature has far reaching implications for the market allocation outcome. Studying the market allocation process, we specify the conditions under which solar technologies penetrate the energy sector. The framework is then used to analyze policy regulation in the form of taxing fossil energy and subsidizing investments in solar energy. The first policy measure addresses undesirable environmental effects associated with the use of fossil fuels and the second internalizes the benefits of learning by doing in the solar industry. Under certain conditions, a temporary subsidy on solar energy investments gives rise to a flourishing, self-sustained solar industry that will (eventually) drive fossil energy out of production.

Suggested Citation

  • Tsur, Yacov & Zemel, Amos, 2009. "Market Structure and the Penetration of Alternative Energy Technologies," Discussion Papers 47174, Hebrew University of Jerusalem, Department of Agricultural Economics and Management.
    • Handle: RePEc:ags:huaedp:47174
    DOI: 10.22004/ag.econ.47174
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    References listed on IDEAS

    as
    1. Yacov Tsur & Amos Zemel, 2009. "Endogenous Discounting and Climate Policy," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(4), pages 507-520, December.
    2. Stern,Nicholas, 2007. "The Economics of Climate Change," Cambridge Books, Cambridge University Press, number 9780521700801.
    3. Martin L. Weitzman, 2009. "On Modeling and Interpreting the Economics of Catastrophic Climate Change," The Review of Economics and Statistics, MIT Press, vol. 91(1), pages 1-19, February.
    4. Tsur, Yacov & Zemel, Amos, 2005. "Scarcity, growth and R&D," Journal of Environmental Economics and Management, Elsevier, vol. 49(3), pages 484-499, May.
    5. Yacov Tsur & Amos Zemel, 2008. "Regulating environmental threats," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 39(3), pages 297-310, March.
    6. -, 2009. "The economics of climate change," Sede Subregional de la CEPAL para el Caribe (Estudios e Investigaciones) 38679, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
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    Cited by:

    1. Smulders, Sjak & Tsur, Yacov & Zemel, Amos, 2012. "Announcing climate policy: Can a green paradox arise without scarcity?," Journal of Environmental Economics and Management, Elsevier, vol. 64(3), pages 364-376.
    2. Narita, Daiju, 2010. "Climate policy, technology choice, and multiple equilibria in a developing economy," Kiel Working Papers 1590, Kiel Institute for the World Economy (IfW Kiel).
    3. Tsur, Yacov & Zemel, Amos, 2009. "On the Dynamics of Competing Energy Sources," Discussion Papers 55265, Hebrew University of Jerusalem, Department of Agricultural Economics and Management.
    4. Sjak Smulders & Yacov Tsur & Amos Zemel, 2014. "Uncertain Climate Policy and the Green Paradox," Dynamic Modeling and Econometrics in Economics and Finance, in: Elke Moser & Willi Semmler & Gernot Tragler & Vladimir M. Veliov (ed.), Dynamic Optimization in Environmental Economics, edition 127, pages 155-168, Springer.

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    Keywords

    Resource /Energy Economics and Policy; Marketing;

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