Transition to Clean Capital, Irreversible Investment and Stranded Assets
This paper uses a Ramsey model with two types of capital to analyze the optimal transition to clean capital when polluting investment is irreversible. The cost of climate mitigation decomposes as a technical cost of using clean instead of polluting capital and a transition cost from the irreversibility of pre-existing polluting capital. With a carbon price, the transition cost can be limited by underutilizing polluting capital, at the expense of a loss in the value of polluting assets (stranded assets) and a drop in income. In contrast, policy instruments that focus on redirecting investments -- such as feebates or environmental standards -- prevent underutilization of existing capital, avoid stranded assets, and reduce short-term losses; but they reduce emissions more slowly and increase the intertemporal cost of the transition. The paper investigates inter- and intra-generational distributional impacts and the political acceptability of climate change mitigation policy instruments
Year of publication: |
2014
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Authors: | Hallegatte, Stephane ; Rozenberg, Julie ; Vogt-Schilb, Adrien |
Publisher: |
2014: World Bank, Washington, DC |
Saved in:
freely available
Extent: | 1 Online-Ressource |
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Series: | Policy Research Working Paper ; No. 6859 |
Type of publication: | Book / Working Paper |
Notes: | English en_US |
Source: | ECONIS - Online Catalogue of the ZBW |
Persistent link: https://www.econbiz.de/10012572824
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