To Build or Not to Build? Capital Stocks and Climate Policy

Arbeitspapier

We investigate how irreversibility in “dirty” and “clean” capital stocks affects optimal climate policy, from both theoretical and numerical perspectives. An increasing carbon tax will reduce investments in assets that pollute, and so reduce emissions in the short term: our “irreversibility effect”. As such the “Green Paradox” has a converse if we focus on demand side capital stock effects. We also show that the optimal subsidy increases with the deployment rate: our “acceleration effect”. Considering second-best settings, we show that, although carbon taxes achieve stringent targets more efficiently, in fact renewable subsidies deliver higher welfare when policy is more mild.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 6884

Classification and Topics

• Classification: Wirtschaft ; Environment and Growth ; Climate; Natural Disasters and Their Management; Global Warming ; Environmental Economics: Government Policy
• Subject: infrastructure ; clean and dirty energy inputs ; renewable energy ; stranded assets ; carbon budget ; climate change policies ; Green Paradox

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Baldwin, Elizabeth ; Cai, Yongyang ; Kuralbayeva, Karlygash
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/176903
• Last update: 10.03.2025, 11:41 AM CET