Distorted time preferences and structural change in the energy industry : a theoretical and applied environmental-economic analysis / Christoph Heinzel.

Format:

Book

Author/Creator:

Heinzel, Christoph.

Series:

Sustainability and innovation

Language:

English

Subjects (All):

Energy industries--Finance.

Energy industries.

Energy industries--Environmental aspects.

Evolutionary economics.

Environmental economics.

Energy policy.

Environmental policy.

Energy industries--Germany.

Germany.

Physical Description:

xvi, 166 pages : illustrations ; 25 cm.

Place of Publication:

Heidelberg : Physica ; London : Springer [distributor], [2009]

Summary:

Technological, institutional and social innovation promotes economic development and international competitiveness, and can do much to reduce environmental burdens. Thus, innovation is an essential factor in the realisation of the principles of sustainbable development.

The series 'Sustainability and Innovation' aims to positively contribute to a better understanding of the connection between innovation and sustainability. It is interdisciplinary in coverage, concentrating primarily on the links between environmental and innovation research. Individual titles in the series focus on topical issues and cover bothe theoretical and empirical aspects; concepts of major practical relevance are also discussed. The series is addressed to researchers and policy makers, as well as to specialists and leaders in business and industry.

This study contributes to the economic discounting debate by examining the welfare and policy implications of distorted time preferences for private investments. The analysis is applied to the energy industry, where it is of particular importance. In the transition to low-carbon energy generation, distorted time preferences are shown to induce a further distortion, in addition to that from the emission externality. Its extent varies directly with the time lag in capital accumulation. In order to implement the socially optimal path, environmental policy needs to be complemented by technology policy. The theoretical findings are applied to the upcoming structural change in the German electricity industry in the 2010s.

Contents:

1 Introduction 1

1.1 Motivation and Research Question 1

1.2 Analytical Approach 2

1.3 Main Contribution 3

1.4 Outline 5

Part I Theoretical Analysis

2 Foundations of the Theoretical Analysis 9

2.1 Social versus Private Time Preferences 9

2.1.1 The Economic Discounting Debate: First-best Benchmark, Second-best Cases, and Some More Recent Issues 10

2.1.2 Three Reasons Particularly Relevant for the Present Analysis 16

2.1.3 Summary and Treatment of the Assumption in the Model 27

2.2 Time-Lagged Capital Theory 29

2.2.1 Its Evolution and the Basic Neo-Austrian Three-process Model 30

2.2.2 New Extensions 32

2.3 Analytical Structure of the Model in Chapter 3 32

2.4 Conclusion 33

3 A Theoretical Model of Structural Change in the Energy Industry 35

3.1 Model 35

3.2 Social Optimum 38

3.2.1 Necessary and Sufficient Conditions for Social Optimum 38

3.2.2 Conditions for Investment and Replacement 41

3.3 Unregulated Competitive Market Equilibrium 45

3.3.1 The Household's Market Decisions 45

3.3.2 The Firms' Market Decisions 46

3.3.3 Necessary and Sufficient Condition for Unregulated Market Equilibrium 47

3.3.4 Conditions for Investment and Replacement 48

3.4 Competitive Market Equilibrium with Emission Tax and Investment Subsidy 51

3.4.1 The Household's and Firms' Market Decisions under Regulation 51

3.4.2 Necessary and Sufficient Condition for Regulated Market Equilibrium 52

3.4.3 Conditions for Investment and Replacement 54

3.5 Conclusion 58

4 Summary of Results, Discussion of Assumptions, and Policy Implications 59

4.1 Summary of Results 59

4.1.1 Too Low Unit Costs of Energy of Established Technology as Compared to Social Optimum Due to Pollution 59

4.1.2 Too High Unit Costs of Energy of New Technology as Compared to Social Optimum Because Private Time-Preference Rate Higher Than Socially Optimal 60

4.1.3 Time Lag of Capital Accumulation Reinforces Distortion from Split of Social and Private Time-Preference Rates 61

4.1.4 Distortions Imply in Mutually Reinforcing Way Less Favorable Circumstances for Innovation and Replacement 61

4.1.5 Social Optimum May Be Implemented by Setting Appropriate Emission Tax and Investment Subsidy 62

4.1.6 Environmental Policy Alone Biased Towards Gradual Change, Technology Policy Alone Independant of Environmental Effect 62

4.2 Discussion of Model Assumptions 63

4.2.1 Social Rate of Time Preference Below Private 63

4.2.2 Time Lag in Capital Accumulation 63

4.2.3 Focus on Linear-limitational, General Energy Technologies 64

4.2.4 Labor Only Primary Input, Energy Homogeneous Output 64

4.2.5 Emissions as Flow Pollutant 65

4.2.6 Abstraction from Peculiarities of Economics of Power Systems 65

4.3 Policy Implications 65

4.3.1 New Reason for Technology Policy 66

4.3.2 No Support of Subsidies for Specific Technologies 66

4.3.3 Necessary Completion of Environmental by Technology Policy 66

4.3.4 Environmental Policy Alone Favors Gradual Change 67

4.3.5 Substantiation of Win-win Hypothesis of Environmental Regulation 67

4.4 Conclusions to Theoretical Part 67

Part II Applied Analysis

5 Foundations of the Applied Analysis 71

5.1 Analytical Setting and Specifics of the Applied Investigation 71

5.1.1 Analytical Setting 72

5.1.2 Focus on Germany Around 2015 and Conventional Generation Technologies 73

5.1.3 Previous Literature, Contribution, and Data Sources 74

5.1.4 Relationship to Theoretical Part 77

5.2 Financial Model 78

5.2.1 Capital Costs 78

5.2.2 Costs During Operation 80

5.2.3 Unit Costs of Electricity of the New Technologies 81

5.2.4 Unit Costs of Electricity of the Established Technology 82

5.3 Technical and Economic Parameters 83

5.3.1 Old and New Coal-fired Reference Power Plants 83

5.3.2 Gas-fired Reference Power Plant 88

5.3.3 Nuclear Reference Power Plant 91

5.4 Policy Parameters 96

5.4.1 Environmental Policy 96

5.4.2 Technology Policy 97

5.5 Conclusion 99

6 Technology Choice Under Environmental and Technology Policies 101

6.1 No-policy Benchmark 101

6.2 Technology Choice Without Abatement Technology 102

6.2.1 Sensitivity Under Environmental Policy 102

6.2.2 Sensitivity Under Technology Policy 104

6.2.3 Sensitivity Under Environmental and Technology Policies Combined 107

6.3 Technology Choice With Abatement Technology 109

6.3.1 Sensitivity Under Environmental Policy 109

6.3.2 Sensitivity Under Environmental and Technology Policies Combined 110

6.4 Summary and Discussion of Results 112

6.4.1 No-policy Benchmark 112

6.4.2 Results Under Environmental Policy Without and With Abatement Option 113

6.4.3 Results in Cases with Technology Policy 114

6.4.4 Results According to Nl and Nh Scenarios 115

6.5 Conclusion 116

7 Optimal Moments of Transition Under Environmental and Technology Policies 119

7.1 Determination of the Optimal Moment of Transition 119

7.2 No-policy Benchmark 121

7.3 Optimal Moments of Transition Without Abatement Technology 122

7.3.1 Sensitivity Under Environmental Policy 122

7.3.2 Sensitivity Under Technology Policy 124

7.3.3 Sensitivity Under Environmental and Technology Policies Combined 126

7.4 Optimal Moments of Transition With Abatement Technology 129

7.4.1 Sensitivity Under Environmental Policy 129

7.4.2 Sensitivity Under Environmental and Technology Policies Combined 131

7.5 Summary and Discussion of Results 133

7.5.1 No-policy Benchmark 133

7.5.2 Results Under Environmental Policy Without and With Abatement Option 133

7.5.3 Results in Cases with Technology Policy 135

7.5.4 Results According to Nl and Nh Scenarios 137

7.6 Conclusion 138

8 Conclusions 141

8.1 Putting the Analysis in Perspective 141

8.2 Policy Conclusions 143

8.3 Issues for Further Research 144.

Notes:

Includes bibliographical references.

ISBN:

9783790821826

3790821829

3790821837

9783790821833

OCLC:

310400819