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How inertia and limited potentials affect the timing of sectoral abatements in optimal climate policy

  • Guy MEUNIER

    ()

    (Alimentation et Sciences Sociales)

This paper investigates the optimal timing of greenhouse gas abatement e orts in a multi-sectoral model with economic inertia, each sector having a limited abatement potential. It defines economic inertia as the conjunction of technical inertia - a social planner chooses investment on persistent abating activities, as opposed to choosing abatement at each time period independently and increasing marginal investment costs in abating activities. It shows that in the presence of economic inertia, optimal abatement efforts (in dollars per ton) are bell-shaped and trigger a transition toward a low-carbon economy. The authors prove that optimal marginal abatement costs should differ across sectors: they depend on the global carbon price, but also on sector-specific shadow costs of the sectoral abatement potential. The paper discusses the impact of the convexity of abatement investment costs: more rigid sectors are represented with more convex cost functions and should invest more in early abatement. The conclusion is that overlapping mitigation policies should not be discarded based on the argument that they set different marginal costs (" different carbon prices") in different sectors.

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Paper provided by Institut National de la Recherche Agronomique, France in its series Working Papers with number 221662.

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Length: 20 p.
Date of creation: 2013
Date of revision:
Handle: RePEc:inr:wpaper:221662
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  1. Manne, Alan & Richels, Richard, 2004. "The impact of learning-by-doing on the timing and costs of CO2 abatement," Energy Economics, Elsevier, vol. 26(4), pages 603-619, July.
  2. Malte Schwoon & Richard S.J. Tol, 2006. "Optimal CO2-abatement with Socio-economic Inertia and Induced Technological Change," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 25-60.
  3. Daron Acemoglu & Philippe Aghion & Leonardo Bursztyn & David Hemous, 2009. "The Environment and Directed Technical Change," NBER Working Papers 15451, National Bureau of Economic Research, Inc.
  4. Jaffe, Adam B. & Newell, Richard G. & Stavins, Robert N., 2005. "A tale of two market failures: Technology and environmental policy," Ecological Economics, Elsevier, vol. 54(2-3), pages 164-174, August.
  5. Adrien Vogt-Schilb & Stéphane Hallegatte, 2013. "Marginal Abatement Cost Curves and the Optimal Timing of Mitigation Measures," Working Papers 2013.89, Fondazione Eni Enrico Mattei.
  6. GRIMAUD André & LAFFORGUE Gilles & MAGNE Bertrand, 2008. "Climate change mitigation options and directed technical change: A decentralized equilibrium analysis," LERNA Working Papers 08.10.254, LERNA, University of Toulouse.
  7. Céline Guivarch & Stéphane Hallegatte, 2011. "Existing infrastructure and the 2°C target," Climatic Change, Springer, vol. 109(3), pages 801-805, December.
  8. Grubb, Michael & Chapuis, Thierry & Duong, Minh Ha, 1995. "The economics of changing course : Implications of adaptability and inertia for optimal climate policy," Energy Policy, Elsevier, vol. 23(4-5), pages 417-431.
  9. 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.
  10. Weitzman, Martin L, 1974. "Prices vs. Quantities," Review of Economic Studies, Wiley Blackwell, vol. 41(4), pages 477-91, October.
  11. Braathen, Nils Axel, 2007. "Instrument Mixes for Environmental Policy: How Many Stones Should be Used to Kill a Bird?," International Review of Environmental and Resource Economics, now publishers, vol. 1(2), pages 185-235, May.
  12. 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.
  13. William D. Nordhaus, 1992. "Rolling the 'Dice': An Optimal Transition Path for Controlling Greenhouse Gases," Cowles Foundation Discussion Papers 1019, Cowles Foundation for Research in Economics, Yale University.
  14. Franck Lecocq & Jean-Charles Hourcade & Minh Ha-Duong, 1998. "Decision making under uncertainty and inertia constraints: sectoral implications of the when flexibility," Post-Print halshs-00002458, HAL.
  15. van der Zwaan, B. C. C. & Gerlagh, R. & G. & Klaassen & Schrattenholzer, L., 2002. "Endogenous technological change in climate change modelling," Energy Economics, Elsevier, vol. 24(1), pages 1-19, January.
  16. Minh Ha-Duong & Michael Grubb & Jean-Charles Hourcade, 1997. "Influence of socioeconomic inertia and uncertainty on optimal CO2-emission abatement," Post-Print halshs-00002452, HAL.
  17. Jaccard, Mark & Rivers, Nic, 2007. "Heterogeneous capital stocks and the optimal timing for CO2 abatement," Resource and Energy Economics, Elsevier, vol. 29(1), pages 1-16, January.
  18. Vincent Viguie & Stephane Hallegatte, 2012. "Trade-offs and synergies in urban climate policies," Post-Print hal-00716121, HAL.
  19. Strand, Jon, 2010. "Inertia in infrastructure development : some analytical aspects, and reasons for inefficient infrastructure choices," Policy Research Working Paper Series 5295, The World Bank.
  20. Grubler, Arnulf & Messner, Sabine, 1998. "Technological change and the timing of mitigation measures," Energy Economics, Elsevier, vol. 20(5-6), pages 495-512, December.
  21. Fischer, Carolyn & Preonas, Louis, 2010. "Combining Policies for Renewable Energy: Is the Whole Less Than the Sum of Its Parts?," International Review of Environmental and Resource Economics, now publishers, vol. 4(1), pages 51-92, June.
  22. repec:hal:journl:hal-00626261 is not listed on IDEAS
  23. 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.
  24. Shalizi, Zmarak & Lecocq, Franck, 2009. "Climate change and the economics of targeted mitigation in sectors with long-lived capital stock," Policy Research Working Paper Series 5063, The World Bank.
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