TY  - JOUR
A1  - Kalkuhl, Matthias
A1  - Steckel, Jan Christoph
A1  - Edenhofer, Ottmar
T1  - All or nothing
BT  - climate policy when assets can become stranded
JF  - Journal of environmental economics and management
N2  - This paper develops a new perspective on stranded assets in climate policy using a partial equilibrium model of the energy sector. Political-economy related aspects are considered in the government's objective function. Lobbying power of firms or fiscal considerations by the government lead to time inconsistency: The government will deviate from a previously announced carbon tax which creates stranded assets. Under rational expectations, we show that a time-consistent policy outcome exists with either a zero carbon tax or a prohibitive carbon tax that leads to zero fossil investments - an "all-or-nothing" policy. Although stranded assets are crucial to such a bipolar outcome, they disappear again under time-consistent policy. Which of the two outcomes (all or nothing) prevails depends on the lobbying power of owners of fixed factors (land and fossil resources) but not on fiscal revenue considerations or on the lobbying power of renewable or fossil energy firms.
KW  - Climate policy
KW  - Optimal control
KW  - Political economy
KW  - Public finance
KW  - Credible policy
KW  - Time inconsistency
Y1  - 2020
U6  - https://doi.org/10.1016/j.jeem.2019.01.012
SN  - 0095-0696
SN  - 1096-0449
VL  - 100
PB  - Elsevier
CY  - San Diego
ER  -