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Assessing and Ordering Investment in Polluting Fossil-fueled and Zero-carbon Capital

Author

Listed:
  • Oskar Lecuyer

    () (Department of Economics and Oeschger Centre for Climate Change Research, University of Bern)

  • Adrien Vogt-Schilb

    () (CIRED and World Bank)

Abstract

We study the transition from preexisting polluting fossil-fueled capital (coal power) to cleaner fossil-fueled capital (gas) and zero-carbon capital (renewable). We model exhaustible resources, irreversible investment, adjustment costs and a carbon budget; both fossil-fuel and renewable energy consumption are subject to capacity constraints. To smooth investment and spread costs, optimal investment in expensive renewable power may start before the cheaper fossil resources are exhausted. Gas power operates as a bridge technology between coal and renewable: it allows building less renewable at the beginning of the transition, moving some efforts from the short to the middle term. Finally, the popular criteria of the levelized cost of electricity is biased toward cheaper and lower-potential alternatives (gas instead of renewable) if computed against current prices. We provide numerical simulations of the European power sector based on the Commission’s energy roadmap to 2050.

Suggested Citation

  • Oskar Lecuyer & Adrien Vogt-Schilb, 2014. "Assessing and Ordering Investment in Polluting Fossil-fueled and Zero-carbon Capital," Policy Papers 2014.02, FAERE - French Association of Environmental and Resource Economists.
  • Handle: RePEc:fae:ppaper:2014.02
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    Cited by:

    1. Vogt-Schilb, Adrien & Hallegatte, Stéphane, 2014. "Marginal abatement cost curves and the optimal timing of mitigation measures," Energy Policy, Elsevier, vol. 66(C), pages 645-653.
    2. repec:hal:wpaper:hal-00916328 is not listed on IDEAS
    3. Frédéric Branger & Oskar Lecuyer & Philippe Quirion, 2015. "The European Union Emissions Trading Scheme: should we throw the flagship out with the bathwater?," Post-Print hal-01137875, HAL.
    4. repec:hal:ciredw:hal-00916328 is not listed on IDEAS

    More about this item

    Keywords

    Climate change mitigation; Path dependence; Optimal timing; Dynamic efficiency; Early-scrapping;

    JEL classification:

    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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