IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Assessing and ordering investments in polluting fossil-fueled and zero-carbon capital

  • Oskar Lecuyer

    ()

    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - CIRAD - Centre de coopération internationale en recherche agronomique pour le développement - École des Ponts ParisTech (ENPC) - CNRS)

  • Adrien Vogt-Schilb

    (CIRED - Centre International de Recherche sur l'Environnement et le Développement - EHESS - École des hautes études en sciences sociales - AgroParisTech - CIRAD - Centre de coopération internationale en recherche agronomique pour le développement - École des Ponts ParisTech (ENPC) - CNRS)

Climate change mitigation requires to replace preexisting carbon-intensive capital with different types of cleaner capital. Coal power and inefficient thermal engines may be phased out by gas power and efficient thermal engines or by renewable power and electric vehicles. We derive the optimal timing and costs of investment in a low- and a zero-carbon technology, under an exogenous ceiling constraint on atmospheric pollution. Producing output from the low-carbon technology requires to extract an exhaustible resource. A general finding is that investment in the expensive zero-carbon technology should always be higher than, and can optimally start before, investment in the cheaper low-carbon technology. We then provide illustrative simulations calibrated with data from the European electricity sector. The optimal investment schedule involves building some gas capacity that will be left unused before it naturally depreciates, a process known as mothballing or early scrapping. Finally, the levelized cost of electricity (LCOE) is a misleading metric to assess investment in new capacities. Optimal LCOEs vary dramatically across technologies. Ranking technologies according to their LCOE would bring too little investment in renewable power, and too much in the intermediate gas power.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: https://hal.archives-ouvertes.fr/hal-00866442/document
Download Restriction: no

Paper provided by HAL in its series CIRED Working Papers with number hal-00866442.

as
in new window

Length:
Date of creation: Jul 2013
Date of revision:
Handle: RePEc:hal:ciredw:hal-00866442
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00866442
Contact details of provider: Web page: https://hal.archives-ouvertes.fr/

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Paul L. Joskow, 2011. "Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies," EUI-RSCAS Working Papers 45, European University Institute (EUI), Robert Schuman Centre of Advanced Studies (RSCAS).
  2. van der Ploeg, Frederick & Withagen, Cees, 2012. "Too much coal, too little oil," Journal of Public Economics, Elsevier, vol. 96(1), pages 62-77.
  3. Holland, Stephen P., 2003. "Extraction capacity and the optimal order of extraction," Journal of Environmental Economics and Management, Elsevier, vol. 45(3), pages 569-588, May.
  4. Adrien Vogt-Schilb & Stéphane Hallegatte, 2013. "When Starting with the Most Expensive Option Makes Sense On Marginal Abatement Cost Curves and Optimal Abatement Pathways," CIRED Working Papers hal-00626261, HAL.
  5. Spiro, Daniel, 2014. "Resource Prices and Planning Horizons," Memorandum 14/2014, Oslo University, Department of Economics.
  6. Mussa, Michael L, 1977. "External and Internal Adjustment Costs and the Theory of Aggregate and Firm Investment," Economica, London School of Economics and Political Science, vol. 44(174), pages 163-78, May.
  7. Rozenberg, Julie & Vogt-Schilb, Adrien & Hallegatte, Stephane, 2013. "How capital-based instruments facilitate the transition toward a low-carbon economy : a tradeoff between optimality and acceptability," Policy Research Working Paper Series 6609, The World Bank.
  8. Ueckerdt, Falko & Hirth, Lion & Luderer, Gunnar & Edenhofer, Ottmar, 2013. "System LCOE: What are the costs of variable renewables?," Energy, Elsevier, vol. 63(C), pages 61-75.
  9. Adrien Vogt-Schilb & Guy Meunier & Stéphane Hallegatte, 2013. "Should marginal abatement costs differ across sectors? The effect of low-carbon capital accumulation," CIRED Working Papers hal-00850682, HAL.
  10. Aurelie Slechten, 2011. "Intertemporal Links in Cap-and Trade Schemes," Working Papers ECARES ECARES 2011-014, ULB -- Universite Libre de Bruxelles.
  11. Amigues, Jean-Pierre & Ayong Le Kama, Alain & Chakravorty, Ujjayant & Moreaux, Michel, 2011. "Equilibrium Transitions from Non Renewable Energy to Renewable Energy under Capacity Constraints," LERNA Working Papers 11.07.341, LERNA, University of Toulouse.
  12. Renaud Coulomb & Fanny Henriet, 2014. "The Grey Paradox: How Oil Owners Can Benefit From Carbon Regulation," PSE Working Papers hal-00818350, HAL.
  13. Adrien Vogt-Schilb & Guy Meunier & Stéphane Hallegatte, 2012. "How inertia and limited potentials affect the timing of sectoral abatements in optimal climate policy," Post-Print hal-00722574, HAL.
  14. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2010. "The Environment and Directed Technical Change," Working Papers 2010.93, Fondazione Eni Enrico Mattei.
  15. Roberton C. Williams III, 2011. "Setting the Initial Time-Profile of Climate Policy: The Economics of Environmental Policy Phase-Ins," NBER Chapters, in: The Design and Implementation of U.S. Climate Policy, pages 245-254 National Bureau of Economic Research, Inc.
  16. repec:hal:wpaper:hal-00850682 is not listed on IDEAS
  17. 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.
  18. Ujjayant Chakravorty & Michel Moreaux & Mabel Tidball, 2008. "Ordering the Extraction of Polluting Nonrenewable Resources," American Economic Review, American Economic Association, vol. 98(3), pages 1128-44, June.
  19. Delucchi, Mark & Lipman, Timothy, 2001. "An Analysis of the Retail and Lifecycle Cost of Battery-Powered Electric Vehicles," Institute of Transportation Studies, Working Paper Series qt50q9060k, Institute of Transportation Studies, UC Davis.
  20. Fischer, Carolyn & Toman, Michael & Withagen, Cees, 2002. "Optimal Investment in Clean Production Capacity," Discussion Papers dp-02-38, Resources For the Future.
  21. Ogden, Joan M. & Williams, Robert H. & Larson, Eric D., 2004. "Societal lifecycle costs of cars with alternative fuels/engines," Energy Policy, Elsevier, vol. 32(1), pages 7-27, January.
  22. Branker, K. & Pathak, M.J.M. & Pearce, J.M., 2011. "A review of solar photovoltaic levelized cost of electricity," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(9), pages 4470-4482.
  23. Adrien Vogt-Schilb & Stéphane Hallegatte & Christophe De Gouvello, 2014. "Long-Term Mitigation Strategies and Marginal Abatement Cost Curves: A Case Study on Brazil," Post-Print hal-00966821, HAL.
  24. Tahvonen, Olli & Salo, Seppo, 2001. "Economic growth and transitions between renewable and nonrenewable energy resources," European Economic Review, Elsevier, vol. 45(8), pages 1379-1398, August.
  25. Reyer Gerlagh & Snorre Kverndokk & Knut Rosendahl, 2009. "Optimal Timing of Climate Change Policy: Interaction Between Carbon Taxes and Innovation Externalities," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 43(3), pages 369-390, July.
  26. Fischer, Carolyn & Newell, Richard G., 2008. "Environmental and technology policies for climate mitigation," Journal of Environmental Economics and Management, Elsevier, vol. 55(2), pages 142-162, March.
  27. Ambec, Stefan & Crampes, Claude, 2012. "Electricity provision with intermittent sources of energy," Resource and Energy Economics, Elsevier, vol. 34(3), pages 319-336.
  28. Waisman, Henri & Rozenberg, Julie & Sassi, Olivier & Hourcade, Jean-Charles, 2012. "Peak Oil profiles through the lens of a general equilibrium assessment," Energy Policy, Elsevier, vol. 48(C), pages 744-753.
  29. Frederick Ploeg & Cees Withagen, 1991. "Pollution control and the Ramsey problem," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 1(2), pages 215-236, June.
  30. Kemp, Murray C & Long, Ngo Van, 1980. "On Two Folk Theorems Concerning the Extraction of Exhaustible Resources," Econometrica, Econometric Society, vol. 48(3), pages 663-73, April.
  31. Jeffrey A. Krautkraemer, 1998. "Nonrenewable Resource Scarcity," Journal of Economic Literature, American Economic Association, vol. 36(4), pages 2065-2107, December.
  32. Wang, Min & Zhao, Jinhua, 2013. "Monopoly extraction of a nonrenewable resource facing capacity constrained renewable competition," Economics Letters, Elsevier, vol. 120(3), pages 503-508.
  33. Goulder, Lawrence H. & Mathai, Koshy, 2000. "Optimal CO2 Abatement in the Presence of Induced Technological Change," Journal of Environmental Economics and Management, Elsevier, vol. 39(1), pages 1-38, January.
  34. Dieter Helm & Cameron Hepburn & Richard Mash, 2003. "Credible Carbon Policy," Oxford Review of Economic Policy, Oxford University Press, vol. 19(3), pages 438-450.
  35. Amigues, J-P & Favard, P & Gaudet, G & Moreaux, M, 1996. "On the Optimal Order of Natural Resource Use When the Capacity of the Inexhaustible Substitute is Limited," Cahiers de recherche 9628, Universite de Montreal, Departement de sciences economiques.
  36. Harry F. Campbell, 1980. "The Effect of Capital Intensity on the Optimal Rate of Extraction of a Mineral Deposit," Canadian Journal of Economics, Canadian Economics Association, vol. 13(2), pages 349-56, May.
  37. repec:inr:wpaper:221666 is not listed on IDEAS
  38. Richard Loulou, 2008. "ETSAP-TIAM: the TIMES integrated assessment model. part II: mathematical formulation," Computational Management Science, Springer, vol. 5(1), pages 41-66, February.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:hal:ciredw:hal-00866442. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.