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How capital-based instruments facilitate the transition toward a low-carbon economy : a tradeoff between optimality and acceptability

Author

Listed:
  • Rozenberg, Julie
  • Vogt-Schilb, Adrien
  • Hallegatte, Stephane

Abstract

This paper compares the temporal profile of efforts to curb greenhouse gas emissions induced by two mitigation strategies: a regulation of all emissions with a carbon price and a regulation of emissions embedded in new capital only, using capital-based instruments such as investment regulation, differentiation of capital costs, or a carbon tax with temporary subsidies on brown capital. A Ramsey model is built with two types of capital: brown capital that produces a negative externality and green capital that does not. Abatement is obtained through structural change (green capital accumulation) and possibly through under-utilization of brown capital. Capital-based instruments and the carbon price lead to the same long-term balanced growth path, but they differ during the transition phase. The carbon price maximizes social welfare but may cause temporary under-utilization of brown capital, hurting the owners of brown capital and the workers who depend on it. Capital-based instruments cause larger intertemporal welfare loss, but they maintain the full utilization of brown capital, smooth efforts over time, and cause lower immediate utility loss. Green industrial policies including such capital-based instruments may thus be used to increase the political acceptability of a carbon price. More generally, the carbon price informs on the policy effect on intertemporal welfare but is not a good indicator to estimate the impact of the policy on instantaneous output, consumption, and utility.

Suggested Citation

  • 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.
  • Handle: RePEc:wbk:wbrwps:6609
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    References listed on IDEAS

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    1. Llavador, Humberto & Roemer, John E. & Silvestre, Joaquim, 2011. "“A dynamic analysis of human welfare in a warming planet”," Journal of Public Economics, Elsevier, pages 1607-1620.
    2. Vogt-Schilb, Adrien & Meunier, Guy & Hallegatte, Stephane, 2012. "How inertia and limited potentials affect the timing of sectoral abatements in optimal climate policy," Policy Research Working Paper Series 6154, The World Bank.
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    6. Lawrence H. Goulder & Roberton C. Williams, 2012. "The Choice Of Discount Rate For Climate Change Policy Evaluation," Climate Change Economics (CCE), World Scientific Publishing Co. Pte. Ltd., pages 1-18.
    7. Céline Guivarch & Stéphane Hallegatte, 2011. "Existing infrastructure and the 2°C target," Climatic Change, Springer, vol. 109(3), pages 801-805, December.
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    9. Jean Charles Hourcade & Philippe Ambrosi & Stéphane Hallegatte & Franck Lecocq & Patrice Dumas & Minh Ha-Duong, 2003. "Optimal control models and elicitation of attitudes towards climate damages," Post-Print halshs-00000966, HAL.
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    Citations

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    Cited by:

    1. Oskar Lecuyer & Adrien Vogt-Schilb, 2013. "Assessing and ordering investments in polluting fossil-fueled and zero-carbon capital," CIRED Working Papers hal-00850680, HAL.
    2. Vogt-Schilb, Adrien & Hallegatte, Stéphane, 2014. "Marginal abatement cost curves and the optimal timing of mitigation measures," Energy Policy, Elsevier, pages 645-653.
    3. repec:hal:wpaper:hal-00916328 is not listed on IDEAS
    4. repec:eee:ecolec:v:144:y:2018:i:c:p:228-243 is not listed on IDEAS
    5. Hallegatte, Stephane & Fay, Marianne & Vogt-Schilb, Adrien, 2013. "Green industrial policies : when and how," Policy Research Working Paper Series 6677, The World Bank.
    6. Julie Rozenberg & Adrien Vogt-Schilb & Stephane Hallegatte, 2013. "Efficiency and Acceptability of Climate Policies: Race Against the Lock-ins," Review of Environment, Energy and Economics - Re3, Fondazione Eni Enrico Mattei.
    7. Brigitte Knopf & Nicolas Koch & Godefroy Grosjean & Sabine Fuss & Christian Flachsland & Michael Pahle & Michael Jakob & Ottmar Edenhofer, 2014. "The European Emissions Trading System (EU ETS): Ex-Post Analysis, the Market Stability Reserve and Options for a Comprehensive Reform," Working Papers 2014.79, Fondazione Eni Enrico Mattei.
    8. Tilman Altenburg & Wilfried Lütkenhorst, 2015. "Industrial Policy in Developing Countries," Books, Edward Elgar Publishing, number 14726, April.
    9. repec:hal:ciredw:hal-00916328 is not listed on IDEAS
    10. Kemp-Benedict, Eric, 2014. "Shifting to a Green Economy: Lock-in, Path Dependence, and Policy Options," MPRA Paper 60175, University Library of Munich, Germany.

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    Keywords

    Climate Change Mitigation and Green House Gases; Economic Theory&Research; Climate Change Economics; Investment and Investment Climate; Emerging Markets;

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