All or nothing
- 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.
Author details: | Matthias KalkuhlORCiDGND, Jan Christoph SteckelORCiDGND, Ottmar EdenhoferORCiDGND |
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DOI: | https://doi.org/10.1016/j.jeem.2019.01.012 |
ISSN: | 0095-0696 |
ISSN: | 1096-0449 |
Title of parent work (English): | Journal of environmental economics and management |
Subtitle (English): | climate policy when assets can become stranded |
Publisher: | Elsevier |
Place of publishing: | San Diego |
Publication type: | Article |
Language: | English |
Date of first publication: | 2020/03/22 |
Publication year: | 2020 |
Release date: | 2024/01/17 |
Tag: | Climate policy; Credible policy; Optimal control; Political economy; Public finance; Time inconsistency |
Volume: | 100 |
Article number: | 102214 |
Number of pages: | 21 |
Organizational units: | Wirtschafts- und Sozialwissenschaftliche Fakultät / Wirtschaftswissenschaften |
DDC classification: | 3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft |
Peer review: | Referiert |