Unintended consequences of a pre-announced climate policy are studied within a framework that allows for competition between polluting and clean energy sources. We show that early announcement of a ...carbon tax gives rise to a “green-paradox,” in that it increases emissions in the interim period (between announcement and actual implementation), irrespective of the scarcity of fossil fuels. The paradoxical outcome is driven by consumption-saving tradeoffs facing households who seek to smooth consumption over time and holds both when the announced implementation date is taken as a credible threat and when households are skeptical about the (political) will or capability of the government to implement the policy as announced.
We introduce nine papers on sustainable resource dynamics. In addition, we provide analytical results on the effect of stochastic damages on optimal economic growth, the effects of habits and loss ...aversion on the cost-benefit discount rate, and the effect of a carbon budget and carbon capture and storage (CCS) on optimal investment in technical change.
We conduct a systematic and interdisciplinary review of empirical literature assessing evidence on induced innovation in energy and related technologies. We explore links between demand-drivers (both ...market-wide and targeted); indicators of innovation (principally, patents); and outcomes (cost reduction, efficiency, and multi-sector/macro consequences). We build on existing reviews in different fields and assess over 200 papers containing original data analysis. Papers linking drivers to patents, and indicators of cumulative capacity to cost reductions (experience curves), dominate the literature. The former does not directly link patents to outcomes; the latter does not directly test for the causal impact of on cost reductions. Diverse other literatures provide additional evidence concerning the links between deployment, innovation activities, and outcomes. We derive three main conclusions. (a) Demand-pull forces enhance patenting; econometric studies find positive impacts in industry, electricity and transport sectors in all but a few specific cases. This applies to all drivers—general energy prices, carbon prices, and targeted interventions that build markets. (b) Technology costs decline with cumulative investment for almost every technology studied across all time periods, when controlled for other factors. Numerous lines of evidence point to dominant causality from at-scale deployment (prior to self-sustaining diffusion) to cost reduction in this relationship. (c) Overall innovation is cumulative, multi-faceted, and self-reinforcing in its direction (path-dependent). We conclude with brief observations on implications for modelling and policy. In interpreting these results, we suggest distinguishing the economics of active deployment, from more passive diffusion processes, and draw the following implications. There is a role for policy diversity and experimentation, with evaluation of potential gains from innovation in the broadest sense. Consequently, endogenising innovation in large-scale models is important for deriving policy-relevant conclusions. Finally, seeking to relate quantitative economic evaluation to the qualitative socio-technical transitions literatures could be a fruitful area for future research.
We show that standard preferences of altruistic overlapping generations exhibit future bias, which involves preference reversals associated with increasing impatience. This underlies a conflict of ...interest between successive generations. We explore the implications of this conflict for intergenerational redistribution when there is a sequence of utilitarian governments representing living generations and choosing policies independently over time. We argue that future bias creates incentives to legislate and sustain a pay-as-you-go pension system, which every government views as a self-enforcing commitment mechanism to increase future old-age transfers.
While fossil energy dependency has declined and energy supply has grown in the postwar world economy, future resource scarcity could cast its shadow on world economic growth soon if energy markets ...are forward looking. We develop an endogenous growth model that reconciles the current aggregate trends in energy use and productivity growth with the intertemporal dynamics of forward looking resource markets. Combining scarcity-rent driven energy supply (in the spirit of Hotelling) with profit-driven Directed Technical Change (in the spirit of Romer/Acemoglu), we generate transitional dynamics that can be qualitatively calibrated to current trends. The long-run properties of the model are studied to examine whether current trends are sustainable. We highlight the role of extraction costs in mining.
•Analytical growth model with directed technical change and endogenous energy supply from non-renewable resources.•Qualitative calibration to data second half 20th century: bounds for parameters are identified.•Energy dependence, as measured by energy share in GDP, first declines and then rises.•The exhaustion of efficiency improvements in resource extraction slows down growth.
Policymakers around the world are increasingly embracing the idea of a “circular economy” (CE), an economy built on the principle of reuse of materials and produced goods through recycling, ...refurbishing, and extended product life. By using less new materials per unit of value added, a CE is considered good for both the environment and the economy. Yet closing the material loop also changes the structure of the economy and the incentives for labor- and resource-productivity enhancing innovations. The overall economic impact is thus not so clear. This paper develops a two-sector endogenous growth model with Schumpeterian innovation, in which the primary sector continuously develops new products and uses primary resources in production, while the secondary sector refurbishes retired products for reuse. We show that increased refurbishing increases short-run consumption, but reduces resource prices (relative to wages) and crowds out the incentives for developing new, possibly less resource-intensive products. If innovations are strongly resource-saving, raising the refurbishing rate leads to a net economic loss.
We study non-renewable resource extraction when institutions weakly protect the resource owner’s property rights. First, weak wealth protection exposes the stock in the ground to trespassing. Second, ...weak income protection exposes revenues from extraction to theft. In our dynamic framework with strategic interactions, the strength of wealth and income protection evolves over time. The weak protection of wealth results in excessive depletion due to the common pool externality. Anticipated changes in institutional strength further distort depletion. A resource user (i.e., owner or trespasser) is less rapacious when she anticipates favorable institutional changes. However, a given change in institutional strength may be favorable for some but detrimental for another resource user. Under these conflicting interests, the anticipation of better wealth protection might result in less efficient extraction. More generally, our results indicate that unstable institutions limit the benefits derived from resource ownership and thus constitute a challenge to the efficient management of non-renewable resource riches in weakly institutionalized economies.
We present a model of growth driven by energy use and endogenous factor-augmenting technological change. Both the rate and direction of technological progress are endogenous. The model captures four ...main stylised facts: total energy use has increased; energy use per hour worked increased slightly; energy efficiency has improved; and the value share of energy in GDP has steadily fallen. We study how energy conservation policies affect growth over time and in the long run. Policies that reduce the level of energy use are distinguished from those that reduce the growth rate of energy inputs. Although these policies may stimulate innovation, they unambiguously depress output levels. The former policy has no impact on long-run growth; the latter reduces long-run growth both in the short run and in the long run.
We present an endogenous growth model in which the scale effect may be positive or negative, but vanishes asymptotically. The mechanism behind this result provides a microfoundation for models that ...exploit the interaction of growth and market structure to remove the scale effect. When more firms are active, the economy is more specialised in that firms are less likely to work on related problems. This increase in technological distance reduces the spillovers between firms. A larger economy with more firms accumulates more knowledge. However, the spillovers that benefit a firm do not necessarily increase because of the differentiation of the knowledge stock.
We study long-run growth in a multi-sector economy with non-renewable resource use and endogenous innovations. Unlike recent capital resource models, we find that poor input substitution need not be ...detrimental for sustainable growth; on the contrary, combined with resource depletion it fosters structural change, which helps to sustain research investments. We derive the properties of the transition path, show which sectors survive in the long run, and discuss whether the economy approximates a steady state with or without a scale effect. The results continue to hold when some sectors exhibit perfect competition. PUBLICATION ABSTRACT
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