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Abandoning Fossil Fuel: How Fast And How Much?

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  • van der Ploeg, Frederick
  • Rezai, Armon

Abstract

Climate change must deal with two market failures, global warming and learning by doing in renewable use. The social optimum requires an aggressive renewables subsidy in the near term and a gradually rising carbon tax which falls in long run. As a result, more renewables are used relative to fossil fuel, there is an intermediate phase of simultaneous use, the carbonfree era is brought forward, more fossil fuel is locked up and global warming is lower. The optimal carbon tax is not a fixed proportion of world GDP. The climate externality is more severe than the learning by doing one.

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  • van der Ploeg, Frederick & Rezai, Armon, 2014. "Abandoning Fossil Fuel: How Fast And How Much?," CEPR Discussion Papers 9921, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:9921
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    More about this item

    Keywords

    Climate change; Integrated assessment; Ramsey growth; Carbon tax; Renewables subsidy; Learning by doing; Directed technical change; Multiplicative damages; Additive damages;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • Q51 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Valuation of Environmental Effects
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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