Description: How Capital-Based Instruments Facilitate the Transition Toward a Low-Carbon Economy : A Tradeoff between Optimality and Acceptability

How Capital-Based Instruments Facilitate the Transition Toward a Low-Carbon Economy : A Tradeoff between Optimality and Acceptability

This paper compares the temporal profile of efforts to curb greenhouse gas emissions induced by two mitigation strategies: a regulation of all emissions with a carbon price and a regulation of emissions embedded in new capital only, using capital-b...

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Bibliographic Details
Main Authors:	Rozenberg, Julie, Vogt-Schilb, Adrien, Hallegatte, Stephane
Language:	English en_US
Published:	World Bank, Washington, DC 2014
Subjects:	ABATEMENT COSTS AFFILIATED ORGANIZATIONS AIR AIR QUALITY ASSETS ATMOSPHERE ATMOSPHERIC CONCENTRATION CALCULATION CAPACITY UTILIZATION CAPITAL ACCUMULATION CAPITAL COST CAPITAL COSTS CAPITAL STOCK CARBON CONTENT CARBON ECONOMY CARBON EMISSIONS CARBON INTENSITY CARBON PRICE CARBON TAX CLEAN AIR CLEAN ENERGY CLIMATE CLIMATE CHANGE CLIMATE DAMAGES CLIMATE OBJECTIVES CLIMATE POLICIES CLIMATE POLICY CLOSED ECONOMY CO CO2 COAL COAL PLANT COMBUSTION CONCENTRATION CEILING CONSUMERS DAMAGES DEPRECIATION DEVELOPMENT POLICY DISCOUNT RATE DISCOUNT RATES DYNAMIC ANALYSIS ECONOMIC RESEARCH ECONOMIES OF SCALE ELASTICITY ELASTICITY OF SUBSTITUTION ELECTRICITY EMISSION REDUCTIONS EMISSION TARGETS ENERGY EFFICIENCY ENERGY EFFICIENCY STANDARDS ENERGY INFRASTRUCTURE ENVIRONMENTAL ECONOMICS ENVIRONMENTAL POLICY ENVIRONMENTAL PROTECTION EQUILIBRIUM EXISTING INFRASTRUCTURE FINANCIAL MARKETS FUNCTIONAL FORMS FUTURE CONSUMPTION GAS EMISSION GHG GLOBAL ECONOMY GLOBAL EMISSIONS GLOBAL WARMING GLOBALIZATION GREEN CAPITAL GREEN INVESTMENT GREEN INVESTMENTS GREENHOUSE GREENHOUSE GAS GREENHOUSE GAS EMISSIONS GREENHOUSE GASES GREENHOUSE GASES EMISSIONS GREENHOUSE-GAS HEAT PRODUCTION HUMAN CAPITAL INCOME INCOME EFFECT INCREASING RETURNS INCREASING RETURNS TO SCALE INTEREST RATE INTEREST RATES INTERGENERATIONAL EQUITY INVESTMENT BEHAVIOR INVESTMENT DECISIONS INVESTMENT REGULATION IPCC JOBS LOW-CARBON MARGINAL ABATEMENT MARGINAL ABATEMENT COST MARGINAL COST MARGINAL PRODUCTIVITY MARGINAL REVENUE MARGINAL UTILITY MARKET FAILURES MONETARY TERMS MULTIPLIERS NEGATIVE EXTERNALITY OUTPUT PATENTS POLITICAL ECONOMY POLLUTION POWER PLANTS PRESENT VALUE PRODUCTION FUNCTION PUBLIC ECONOMICS RATE OF RETURN REGULATORY CAPTURE RESOURCE ECONOMICS RETURNS TO SCALE SHADOW PRICE SOCIAL COST SOCIAL COST OF CARBON STRUCTURAL CHANGE SUBSTITUTION EFFECT SUSTAINABLE DEVELOPMENT TAX REVENUE TECHNOLOGICAL CHANGE TEMPERATURE TOTAL COST TRADE SYSTEM TURNOVER UNEMPLOYMENT UTILITY FUNCTION UTILITY MAXIMIZATION WIND
Online Access:	http://documents.worldbank.org/curated/en/2013/09/18269228/capital-based-instruments-facilitate-transition-toward-low-carbon-economy-tradeoff-between-optimality-acceptability http://hdl.handle.net/10986/16837

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Summary:	This paper compares the temporal profile of efforts to curb greenhouse gas emissions induced by two mitigation strategies: a regulation of all emissions with a carbon price and a regulation of emissions embedded in new capital only, using capital-based instruments such as investment regulation, differentiation of capital costs, or a carbon tax with temporary subsidies on brown capital. A Ramsey model is built with two types of capital: brown capital that produces a negative externality and green capital that does not. Abatement is obtained through structural change (green capital accumulation) and possibly through under-utilization of brown capital. Capital-based instruments and the carbon price lead to the same long-term balanced growth path, but they differ during the transition phase. The carbon price maximizes social welfare but may cause temporary under-utilization of brown capital, hurting the owners of brown capital and the workers who depend on it. Capital-based instruments cause larger intertemporal welfare loss, but they maintain the full utilization of brown capital, smooth efforts over time, and cause lower immediate utility loss. Green industrial policies including such capital-based instruments may thus be used to increase the political acceptability of a carbon price. More generally, the carbon price informs on the policy effect on intertemporal welfare but is not a good indicator to estimate the impact of the policy on instantaneous output, consumption, and utility.

How Capital-Based Instruments Facilitate the Transition Toward a Low-Carbon Economy : A Tradeoff between Optimality and Acceptability

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