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Uncertain long-run emissions targets, CO2 price and global energy transition : a general equilibrium approach

  • DURAND-LASSERVE, Olivier

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium; IFP, Economics Department, Rueil- Malmaison, France.)

  • PIERRU, Axel

    ()

    (IFP, Economics Department, Rueil- Malmaison, France.)

  • SMEERS, Yves

    ()

    (Center for Operations Research and Econometrics (CORE), Université catholique de Louvain (UCL), Louvain la Neuve, Belgium)

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    The persistent uncertainty about mid-century CO2 emissions targets is likely to affect not only the technological choices that energy-producing firms will make in the future but also their current invest- ment decisions. We illustrate this effect on CO2 price and global energy transition within a MERGE-type general-equilibrium model framework, by considering simple stochastic CO2 policy scenarios. In these scenarios, economic agents know that credible long-run CO2 emissions targets will be set in 2020, with two possible outcomes: either a ”hard cap” or a ”soft cap”. Each scenario is characterized by the relative probabilities of both possible caps. We derive consistent stochastic trajectories - with two branches after 2020 - for prices and quantities of energy commodities and CO2 emissions permits. The impact of uncertain long-run CO2 emissions targets on prices and technological trajectories is discussed. In addition, a simple marginal approach allows us to analyze the Hotelling rule with risk premia observed for certain scenarios

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    File URL: http://www.uclouvain.be/cps/ucl/doc/core/documents/coredp2010_27web.pdf
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    Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2010027.

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    Date of creation: 01 Jun 2010
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    Handle: RePEc:cor:louvco:2010027
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