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Scrapping, Renewable Technology Adoption, and Growth

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  • Bernardino Adão
  • Borghan Narajabad

Abstract

We develop a dynamic general equilibrium integrated assessment model that incorporates scrapping costs due to new technology adoption in renewable energy as well as externalities associated with carbon emissions and renewable technology spillovers. We use world economy data to calibrate our model and investigate the effects of the scrapping channel on renewable energy adoption and on the optimal energy transition. Our calibrated model implies several interesting connections between scrapping costs, the two externalities, policy, and welfare. We investigate the relative effectiveness of two policy instruments-Pigouvian carbon taxes and policies that internalize spillover effects-in isolation as well as in tandem. Our findings suggest that scrapping costs are of quantitative importance for technology adoption and the energy transition. The two policy instruments are better thought of as complements rather than substitutes.

Suggested Citation

  • Bernardino Adão & Borghan Narajabad, 2021. "Scrapping, Renewable Technology Adoption, and Growth," Working Papers w202111, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:wpaper:w202111
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