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Avoiding Carbon Lock-In: Policy Options for Advancing Structural Change

  • Felix Creutzig

    (Department of Economics of Climate Change, TU Berlin)

Registered author(s):

    A major obstacle for the transformation to a low-carbon economy is the risk of a carbon lock-in: fossil fuel-based ('dirty') technologies dominate the market although their carbon-free ('clean') alternatives are dynamically more efficient. We study the interaction of learning-by-doing spillovers and the substitution elasticity between the clean and the dirty sector in an intertemporal general equilibrium model. We find that the substitution possibilities between the two sectors have an ambivalent effect: although a high substitution elasticity requires less aggressive mitigation policies than a low one, it creates a greater lock-in in the absence of regulation. The optimal policy response consists of a permanent carbon tax as well as a learning subsidy for clean technologies. A single policy instrument can also avoid high welfare losses, but a more stringent mitigation target can only be achieved at painful costs. We demonstrate that the policy implication of [Acemoglu et al. 2012] is limited in scope. Our numerical results also highlight that infrastructure provision is crucial to facilitate the low-carbon transformation.

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    File URL: http://ideas.climatecon.tu-berlin.de/documents/wpaper/CLIMATECON-2012-03.pdf
    File Function: First version, 2012
    Download Restriction: no

    Paper provided by Department of Climate Change Economics, TU Berlin in its series Working Papers with number 1.

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    Length: 23 pages
    Date of creation: Feb 2012
    Date of revision: Feb 2012
    Handle: RePEc:ecc:wpaper:4
    Contact details of provider: Web page: http://www.climatecon.tu-berlin.de/

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    1. Sasaki, Komei, 1989. "Transportation system change and urban structure in two-transport mode setting," Journal of Urban Economics, Elsevier, vol. 25(3), pages 346-367, May.
    2. repec:cup:cbooks:9780521346627 is not listed on IDEAS
    3. Francois GUSDORF & Stéphane HALLEGATTE, . "Compact or Spread-Out Cities: Urban Planning, Taxation, and the Vulnerability to Transportation Shocks," Regional and Urban Modeling 284100017, EcoMod.
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    5. Kim, Tschangho John, 1979. "Alternative transportation modes in an urban land use model: A general equilibrium approach," Journal of Urban Economics, Elsevier, vol. 6(2), pages 197-215, April.
    6. Stéphanie Souche, 2010. "Measuring the structural determinants of urban travel demand," Post-Print halshs-00578019, HAL.
    7. Felix Creutzig & Emily McGlynn & Jan Minx & Ottmar Edenhofer, 2010. "Climate policies for road transport revisited (I): Evaluation of the current framework," Working Papers 1, Department of Climate Change Economics, TU Berlin, revised Dec 2010.
    8. Karathodorou, Niovi & Graham, Daniel J. & Noland, Robert B., 2010. "Estimating the effect of urban density on fuel demand," Energy Economics, Elsevier, vol. 32(1), pages 86-92, January.
    9. Borck, Rainald & Wrede, Matthias, 2008. "Commuting subsidies with two transport modes," Journal of Urban Economics, Elsevier, vol. 63(3), pages 841-848, May.
    10. Glaeser, Edward L. & Kahn, Matthew E., 2010. "The greenness of cities: Carbon dioxide emissions and urban development," Journal of Urban Economics, Elsevier, vol. 67(3), pages 404-418, May.
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