Energy Transition : Strategic Interactions Between Global Externalities and Capital Stock For Renewable Energy Resources

When considering that increasing CO2 emissions are one of the most important reasons for global warming, the prospect for energy transition emerges as a significant way to combat this issue. Although there is a high correlation between CO2 emissions and fossil fuel consumption, nonrenewable resources as capital stock can be used to produce or facilitate the use of renewable energy resources. This points to a closer look at the interaction between global externalities from fossil fuel use and the capital stock from those extracted resources that can be used in renewables. Global warming is considered an issue of global public good (GPG), with each country preferring that others reduce the risk and effects at their own expense. This results in a conflict at the domestic level between fossil fuel consumption to boost economic activities and saving those resources as capital stock to invest in renewable energy. Optimal paths to address CO2 concentration and capital stock critically depend on strategies that mitigate the costs of climate externalities. This paper aims to investigate the effect of cooperative and noncooperative scenarios - as two main strategies for GPGs - on the global externalities and capital stock of renewable energy resources. This assessment reveals also information about fossil fuel extraction, consumption and depletion under mentioned scenarios. This study is unique in its consideration of strategic interactions between different policymakers - two countries or a coalition of countries - instead of considering a sequence of homogeneous agents that explore the effects of different scenarios on performance. In this respect, equilibriums for CO2 concentration and capital stock in cooperative and non-cooperative scenarios will be assessed. For this purpose, a game is constructed using the innovative idea of the nonlinear model predictive control to formalize policymaker interaction