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

Format:

Book

Government document

Author/Creator:

Rozenberg, Julie

Contributor:

Hallegatte, Stephane

Rozenberg, Julie

Vogt-Schilb, Adrien

Series:

Policy research working papers.

World Bank e-Library.

Language:

English

Subjects (All):

Climate Change Economics.

Climate Change Mitigation and Green House Gases.

Climate mitigation.

Economic Theory & Research.

Emerging Markets.

Energy efficiency standards.

Intergenerational equity.

Investment and Investment Climate.

Macroeconomics and Economic Growth.

Local Subjects:

Climate Change Economics.

Climate Change Mitigation and Green House Gases.

Climate mitigation.

Economic Theory & Research.

Emerging Markets.

Energy efficiency standards.

Intergenerational equity.

Investment and Investment Climate.

Macroeconomics and Economic Growth.

Physical Description:

1 online resource (31 pages)

Other Title:

How Capital-Based Instruments Facilitate the Transition toward a Low-Carbon Economy

Place of Publication:

Washington, D.C., The World Bank, 2013

System Details:

data file

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.