The economics of changing course: implications of adaptability and inertia for optimal climate policy
This paper reviews evidence that energy technologies and systems adapt over time to accomodate external pressures: that technical innovation and systemic change in the energy sector is largely induced by need, and restrained by potentially large transitional costs. A simple integrated model of optimal greenhouse gas abatement over time is presented, in which the abatement cost depends on both fixed and transitional elements. It is shown that the optimal current response and long-run prospects differ radically between the classical economic case - in which the cost of a given cutback in emissions is fixed exogenously - and the adaptative case - in which the response is ultimately adaptative but heavily constrained by inertia (i.e. low fixed but high transitional costs). If energy systems are indeed to a large degree adaptive, the results demonstrate that as compared with the classical non-adaptive case: long-run stabilization of atmospheric CO2 may be optimal even with moderate damages from climate change; greater near-term abatement efforts are justified; and the cost of a given delay in response may be several times higher. Neglect of the issue of induced technical change and other adaptive responses may invalidate the policy implications drawn from most integrated assessment models developed to date.
|Date of creation:||1995|
|Date of revision:|
|Publication status:||Published in Energy Policy, Elsevier, 1995, 23 (4/5), pp.417-432. <10.1016/0301-4215(95)90167-6>|
|Note:||View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00002455|
|Contact details of provider:|| Web page: https://hal.archives-ouvertes.fr/|
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.:
- Hourcade, Jean-Charles, 1993. "Modelling long-run scenarios : Methodology lessons from a prospective study on a low CO2 intensive country," Energy Policy, Elsevier, vol. 21(3), pages 309-326, March.
- Anderson, Dennis & Bird, Catherine D, 1992. "Carbon Accumulations and Technical Progress--A Simulation Study of Costs," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 54(1), pages 1-29, February.
- I.O. Walker & Franz Wirl, 1993. "Irreversible Price-Induced Efficiency Improvements: Theory and Empirical Application to Road Transportation," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 183-205.
- Nordhaus, William D, 1991. "To Slow or Not to Slow: The Economics of the Greenhouse Effect," Economic Journal, Royal Economic Society, vol. 101(407), pages 920-37, July.
- Peter Hoeller & Andrew Dean & Masahiro Hayafuji, 1992. "New Issues, New Results: The OECD's Second Survey of the Macroeconomic Costs of Reducing CO2 Emissions," OECD Economics Department Working Papers 123, OECD Publishing.
- Dermot Gately, 1993. "The Imperfect Price-Reversibility of World Oil Demand," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 163-182.
- Grubb, Michael, 1993. "Policy modelling for climate change : The missing models," Energy Policy, Elsevier, vol. 21(3), pages 203-208, March.
- Ernst Berndt & Charles Kolstad & Jong-Kun Lee, 1993. "Measuring the Energy Efficiency and Productivity Impacts of Embodied Technical Change," The Energy Journal, International Association for Energy Economics, vol. 0(Number 1), pages 33-56.
When requesting a correction, please mention this item's handle: RePEc:hal:journl:halshs-00002455. 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 references are entirely missing, you can add them using this form.