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Capital Sunk, Emissions Locked: The Economics of Energy Transitions under Carbon Constraints

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  • Moreaux, Michel
  • Amigues, Jean-Pierre
  • Nguyen, Manh-Hung

Abstract

Optimal energy transitions are characterized in an economy where fossil energy requires dedicated conversion capital that is costly to reverse and where cumulative emissions are capped by an exogenous carbon budget. Short-run complementarity between fossil inputs and sector-specific capital interacts with intertemporal scarcity of the remaining budget. The optimal path typically selects an expansion regime, a production plateau, a decline regime, and a post-fossil steady state. The plateau is pinned down by the need to operate in order to amortize sunk conversion capital while the shadow value of remaining emissions rises over time. These forces generate non-monotone useful-energy prices and deliver sharp conditions under which dedicated fossil capital becomes stranded.

Suggested Citation

  • Moreaux, Michel & Amigues, Jean-Pierre & Nguyen, Manh-Hung, 2026. "Capital Sunk, Emissions Locked: The Economics of Energy Transitions under Carbon Constraints," TSE Working Papers 26--1721, Toulouse School of Economics (TSE).
    • Handle: RePEc:tse:wpaper:131485
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    Keywords

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    JEL classification:

    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • Q00 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - General
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming

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