Abstract
Keeping climate change within limits requires that most of the available carbon-based energy sources need to be abandoned underground. We study how fast and how much this transition to carbon-free energy needs to occur within a welfare-maximizing Ramsey growth model of climate change. Our model also addresses the market failure in the development of clean energy which leads to an under-provision of renewable energy, delays the transition time to the carbon-free era and reduces the amount of dirty fuels locked up in situ. Optimal policy requires an aggressive renewables subsidy in the near term and a gradually rising carbon tax which falls in long run. We also study the transition timing and the performance of recently proposed policy rules for the carbon tax.
Original language | English |
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Pages (from-to) | 16 - 44 |
Journal | Manchester School |
Volume | 85 |
DOIs | |
Publication status | Published - 2017 |
Austrian Classification of Fields of Science and Technology (ÖFOS)
- 502042 Environmental economics
- 502027 Political economy
- 502046 Economic policy
- 502047 Economic theory