Abandoning Fossil Fuel: How Fast and How Much?

44 Pages Posted: 2 Jun 2014

See all articles by Armon H. Rezai

Armon H. Rezai

Vienna University of Economics and Business

Rick van der Ploeg

University of Oxford

Date Written: March 2014

Abstract

Climate change must deal with two market failures, global warming and learning by doing in renewable use. The social optimum requires an aggressive renewables subsidy in the near term and a gradually rising carbon tax which falls in long run. As a result, more renewables are used relative to fossil fuel, there is an intermediate phase of simultaneous use, the carbonfree era is brought forward, more fossil fuel is locked up and global warming is lower. The optimal carbon tax is not a fixed proportion of world GDP. The climate externality is more severe than the learning by doing one.

Keywords: additive damages, carbon tax, climate change, directed technical change, integrated assessment, learning by doing, multiplicative damages, Ramsey growth, renewables subsidy

JEL Classification: H21, Q51, Q54

Suggested Citation

Rezai, Armon H. and van der Ploeg, Frederick, Abandoning Fossil Fuel: How Fast and How Much? (March 2014). CEPR Discussion Paper No. DP9921, Available at SSRN: https://ssrn.com/abstract=2444944

Armon H. Rezai (Contact Author)

Vienna University of Economics and Business ( email )

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Frederick Van der Ploeg

University of Oxford ( email )

Manor Road Building
Manor Road
Oxford, OX1 3BJ
United Kingdom

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