eprintid: 13988
rev_number: 14
eprint_status: archive
userid: 5
dir: disk0/00/01/39/88
datestamp: 2016-11-25 09:49:36
lastmod: 2021-08-27 17:41:39
status_changed: 2016-11-25 09:49:36
type: article
metadata_visibility: show
item_issues_count: 0
creators_name: Rezai, A.
creators_name: van der Ploeg, F.
creators_id: 8648
title: Second-Best Renewable Subsidies to De-carbonize the Economy: Commitment and the Green Paradox
ispublished: pub
divisions: prog_risk
divisions: prog_rpv
keywords: First best; Second best; Commitment; Markov-perfect; Ramsey growth; Carbon tax; Renewables subsidy; Learning by doing; Directed technical change
abstract: Climate change must deal with two market failures: global warming and learning by doing in renewable energy production. The first-best policy consists of an aggressive renewables subsidy in the near term and a gradually rising and falling carbon tax. Given that global carbon taxes remain elusive, policy makers might have to rely on a second-best subsidy only. With credible commitment the second-best subsidy is higher than the social benefit of learning to cut the transition time and peak warming close to first-best levels at the cost of higher fossil fuel use in the short run (weak Green Paradox). Without commitment the second-best subsidy is set to the social benefit of learning. It generates smaller weak Green Paradox effects, but the transition to the carbon-free takes longer and cumulative carbon emissions are higher. Under first best and second best with pre-commitment peak warming is 2.1–2.3 ∘C, under second best without commitment 3.5 ∘C, and without any policy 5.1 ∘C above pre-industrial levels. Not being able to commit yields a welfare loss of 95% of initial GDP compared to first best. Being able to commit brings this figure down to 7%.
date: 2017-03
date_type: published
publisher: Springer Netherlands
id_number: 10.1007/s10640-016-0086-3
creators_browse_id: 248
full_text_status: public
publication: Environmental and Resource Economics
volume: 66
number: 3
pagerange: 409-434
refereed: TRUE
issn: 0924-6460
coversheets_dirty: FALSE
fp7_project: no
fp7_type: info:eu-repo/semantics/article
citation:   Rezai, A. <https://pure.iiasa.ac.at/view/iiasa/248.html> & van der Ploeg, F.  (2017).  Second-Best Renewable Subsidies to De-carbonize the Economy: Commitment and the Green Paradox.   Environmental and Resource Economics 66 (3) 409-434. 10.1007/s10640-016-0086-3 <https://doi.org/10.1007/s10640-016-0086-3>.       
document_url: https://pure.iiasa.ac.at/id/eprint/13988/1/s10640-016-0086-3.pdf