incentive compatible imbalance settlement imbalance settlement markets are managed by the system operators and provide a mechanism for settling the inevitable discrepancies between contractual agreements and physical delivery in european power markets settlements schemes are mainly based on heuristic penalties these arrangements have disadvantages first they do not provide transparency about the cost of the reserve capacity that the system operator may have obtained ahead of time nor about the cost of the balancing energy that is actually deployed second they can be gamed if market participants use the imbalance settlement as an opportunity for market arbitrage for example if market participants use balancing energy to avoid higher costs through regular trade on illiquid energy markets third current practice hinders the market based integration of renewable energy and the provision of financial incentives for demand response through rigid penalty rules in this paper we try to remedy these disadvantages by proposing an imbalance settlement procedure with an incentive compatible cost allocation scheme for reserve capacity and deployed energy incentive compatible means that market participants voluntarily and truthfully state their valuation of ancillary services we show that this approach guarantees revenue sufficiency for the system operator and provides financial incentives for balance responsible parties to keep imbalances close to zero

agent based analysis of the impact of the imbalance pricing mechanism on market behavior in electricity balancing markets abstract the imbalance pricing mechanism is an important design variable within european type electricity balancing markets that determines the incentives given to so called balance responsible parties brps to balance their electricity production and consumption portfolio to analyze the impact of alternative imbalance pricing mechanisms on balancing market performance an agent based model has been built in which the brps are the agents that decide autonomously in each round on their balancing strategy based on results in past rounds six alternative mechanisms are analyzed it is concluded that aiming for a small long position is generally the preferable brp strategy different imbalance pricing mechanisms lead to comparable system imbalances but single pricing results in the lowest imbalance costs for the brps and for the market as a whole

climate policy with tied hands optimal resource taxation under implementation lags in the presence of implementation lags announced pigouvian taxation leads to fossil fuel prices that are too low from society s perspective this results in excessive emissions and reduced incentives for green innovation such effects are compounded by the presence of pre existing subsidies to fossil fuel use we show that the intertemporal resource tax path may need to be modified to optimally take into account the perverse incentives from policy lags and pre existing policies we find that it might be optimal to subsidize rather than tax resource extraction at the instant of implementation

resource rents the effects of energy taxes and quantity instruments for climate protection abstract carbon dioxide emissions correspond to fossil resource use when considering this supply side of climate protection crucial questions come to fore it seems likely that owners of fossil resources would object to emission reductions moreover policy instruments such as taxes may not be effective at all it seems individually rational to leave no fossil resources unused in this context it can be expected that economic sectors will react strategically to climate policy aiming at a re distribution of rents to address these questions we investigate the effectiveness efficiency and resource rents for energy taxes resource taxes and quantity rationing of emissions the analysis is based on a game theoretic growth model with explicit factor markets and policy instruments market equilibrium depends on a government that acts as a stackelberg leader with a climate protection goal we find that resource taxes and quantity rationing achieve this objective efficiently energy taxation is only second best the use of quantity rationing to achieve climate protection generates substantial rents for resource owners

an alternative time series model of consumption some empirical evidence this paper presents some empirical evidence for a time series model of aggregate consumer expenditure which is formulated in continuous time it is argued that such models expressed in terms of stochastic differential equations are more realistic in representing the dynamic evolution of many economic time series particularly at the aggregate level however such models impose complicated restrictions on the discretely observed data which must be taken account of in estimation the appropriate methodology is applied to a version of the consumption function for uk data and is found to provide a good description of the data the estimated continuous time model is compared with more popular discrete models and is found to provide superior dynamic post sample predictions over 16 quarters the formulation of econometric models in continuous time may provide an alternative and potentially successful approach to the modelling of time series in many aspects of economics

on forecasting uk consumption this paper is concerned with the search for the appropriate methodology for constructing an econometric model for forecasting aggregate consumption forecasts of the various national income categories such as consumption investment exports etc is an important pre requisite of macroeconomic policy it is such forecasts welded within the framework of a macroeconomic model which provide the policy makers with the information on which to base economic policy ideally a good forecasting model should have the properties of 1 being parsimonious in the use of information especially current information on endogenous variables 2 be simple to manipulate and 3 should work well in the econometric sense a fourth criterion namely being strongly founded in economic theory is more open to dispute for example the time series forecasting models developed by box and jenkins need not rely on economic theory at all without pushing the point too far one could argue that at least to economists economic theo

balancing energy strategies in electricity portfolio management traditional management of electricity portfolios is focused on the day ahead market and futures of longer maturity within limits market participants can however also resort to the balancing energy market to close their positions in this paper we determine strategic positions in the balancing energy market and identify corresponding economic incentives in an analysis of the german balancing energy demand we find that those strategies allow an economically optimal starting point for real time balancing and create a marketplace for flexible capacity that is more open than alternative marketplaces the strategies we proffer in this paper we believe will contribute to an effective functioning of the electricity market

cycles in nonrenewable resource prices with pollution and learning by doing we study how environmental regulation in the form of a cap on aggregate emissions from a fossil fuel e g coal interacts with the arrival of a clean substitute e g solar energy the cost of the substitute is assumed to decrease with cumulative use because of learning by doing we show that optimal energy prices may initially increase because of pollution regulation but fall due to learning and rise again because of scarcity of the resource finally falling after transition to the clean substitute thus nonrenewable resource prices may exhibit cyclical behavior even in a purely deterministic setting

optimal transition to renewable energy with threshold of irreversible pollution when cheap fossil energy is polluting and pollutant no longer absorbed beyond a certain concentration there is a moment when the introduction of a cleaner renewable energy although onerous is optimal with respect to inter temporal utility the cleaner technology is adopted either instantaneously or gradually at a controlled rate the problem of optimum under viability constraints is 6 dimensional under a continuous discrete dynamic controlled by energy consumption and investment into production of renewable energy viable optima are obtained either with gradual or with instantaneous adoption a longer time horizon increases the probability of adoption of renewable energy and the time for starting this adoption it also increases maximal utility and the probability to cross the threshold of irreversible pollution exploiting a renewable energy starts sooner when adoption is gradual rather than instantaneous the shorter the period remaining after adoption until the time horizon the higher the investment into renewable energy

ordering the extraction of polluting nonrenewable resources energy markets are often characterized by the use of multiple nonrenewable resources such as coal and natural gas with different pollution characteristics the same resource may have different qualities as when high and low sulfur coal is used to generate electricity multiple resources are used in providing transportation services such as cars running on gasoline or plug in hybrids that may be fueled by electricity produced from coal when these nonrenewable resources contribute differentially to pollution what is the opti mal sequence of extraction over time harold hotelling 1931 developed the classical theory of extraction of a nonrenewable resource orris c herfindahl 1967 extended the hotelling model by considering many resources with different unit costs of extraction and proposed the least cost first principle extraction must be ordered by cost with the cheapest resource used first others have examined whether herfindahl s model remains valid in a variety of situations in a general equilibrium setting see murray kemp and ngo v long 1980 tracy r lewis 1982 in the presence of setup costs g rard gaudet moreaux and stephen w salant 2001 under het erogeneous demands chakravorty and darrell l krulce 1994 and when the extraction rate is constrained jean pierre amigues et al 1998 stephen p holland 2003 in these studies following hotelling and herfindahl resources were differentiated by cost alone in this paper we abstract from cost considerations and focus on how the sequence of extraction may be affected when resources are differentiated only by their pollution character istics we consider two resources one more polluting than the other without loss of generality consider coal to be the dirty resource and natural gas the clean one both may be used to generate electricity environmental regulation is imposed through a cap on the stock of pollution this may be a stylized approximation of an international agreement such as the kyoto protocol which aims to stabilize the concentration of greenhouse gases in the atmosphere 1 with heterogeneity in pollution the results are nonintuitive and do not depend on the emis sion rates of the resources when the economy is already at its allowable stock of pollution the clean natural gas is used first and use of the dirty coal is postponed to the future this is what one would expect armed with insights from the herfindahl model however when the economy starts from below the ceiling and accumulates pollution coal may be used first and use of the clean natural gas is postponed the optimal strategy is to benefit from natural dilution by build ing the stock of pollution as quickly as possible this is done by burning coal rather than natural

on the effectiveness of the anti gaming policy between the day ahead and real time electricity markets in the netherlands in this paper we study the linkage between two related markets for electricity in the netherlands the day ahead market and the real time market the dutch regulator wants to prevent trading across these two markets and has set up a dual pricing system for this purpose in this paper we test the effectiveness of this policy by studying the ex post profitability of trading strategies spanning the two markets over various time segments our results show that profits generated by these strategies are rarely positive on average and always characterized by very large potential losses which dwarf the mean profit when the latter is positive

the grey paradox how fossil fuel owners can benefit from carbon taxation abstract this paper considers the distributional impact of optimal carbon taxation on fossil fuel owners a carbon emitting exhaustible resource competes with a dirtier abundant resource and a clean backstop a time dependent carbon tax is set to optimally use these resources under a cap constraint over co 2 atmospheric concentration as the cap is tightened the dirtier resource becomes less competitive compared to the exhaustible resource the competition effect but the timing and duration of extraction of the exhaustible resource is modified the timing effect we provide analytical expressions of these effects and determine conditions over size of reserves pollution contents extraction costs and demand elasticity such that the exhaustible resource owners profits increase as the ceiling is tightened calibrations for the transport and power sectors suggest that the profits of conventional oil and natural gas owners increase compared to a baseline without regulation for plausible carbon ceiling values

abatement r d and growth with a pollution ceiling abstract the consequences of the 2 c climate target and the implicitly imposed ceiling on co2 have been analyzed in several studies we use an endogenous growth model with a ceiling and an abatement option to study the effect of the ceiling on the allocation of limited funds for r d abatement and capital accumulation it is found that the advantagenousness of abatement rises with the cost advantage of fossil fuel versus backstop if the cost advantage is sufficiently large at some point in time it outweighs the costs of abatement and the gains of r d and capital accumulation the reallocation of production towards abatement may cause an increase or decrease in long run consumption in the latter case abatement allows an intertemporal consumption trade off which may even justify the disregard of everlasting growth in case of stock dependent fossil fuel costs an abatement induced speed up of technology development may cause an increase in fossil fuel stock left in situ

growth renewables and the optimal carbon tax optimal climate policy is investigated in a ramsey growth model of the global economy with exhaustible oil reserves an infinitely elastic supply of renewables stock dependent oil extraction costs and convex climate damages four regimes can occur depending on the initial social cost of oil being larger or smaller than that of renewables and depending on the initial oil stock being large or small we also offer some policy simulations for the first and second regime which illustrate that with a lower discount rate more oil is left in situ and renewables are phased in more quickly we identify the conditions under which the optimal carbon tax rises or decreases subsidizing renewables without a carbon tax induces more oil to be left in situ and a quicker phasing in of renewables but oil is depleted more rapidly initially the net effect on global warming is ambiguous abstract from author

the effect of price regulation on energy imbalances a difference in differences design abstract providing adequate incentives to schedule energy programs accurately is a critical feature of liberalized electricity markets particularly those with large shares of intermittent renewable energy resources in this regard two main regulatory approaches are widely adopted in europe the single pricing scheme rewards or penalizes market agents according to the impact of their individual imbalances on the system imbalance the dual pricing scheme penalizes at best does not reward all individual energy imbalances this study theoretically identifies and then provides supporting empirical evidence of potential inconsistencies between market agents balancing responsibility and the economic incentives provided by these pricing rules de facto opportunities for arbitrage in sequential markets the causal effect of imbalance price regulations on the volume of the energy imbalances is investigated by exploiting a quasi experimental change in regulation in the italian power system a difference in differences design provides robust evidence that the volume of intentional imbalances significantly decreases when moving from a single to dual pricing scheme we conclude that the economic incentives of a dual pricing scheme are better aligned with a market agent s responsibility to be balanced and worth of further consideration from a policy perspective

optimal timing of ccs policies with heterogeneous energy consumption sectors using the chakravorty et al j econ dyn control 30 2875 2904 2006 ceiling model we characterize the optimal consumption paths of three energy resources dirty oil which is non renewable and carbon emitting clean oil which is also non renewable but carbon free thanks to an abatement technology and solar energy which is renewable and carbon free the resulting energy mix can supply the energy needs of two sectors these sectors differ in the additional abatement cost they have to pay for consuming clean rather than dirty oil as sector 1 industry can abate its emissions at a lower cost than sector 2 transport we show that it is optimal to begin by fully capturing sector 1 s emissions before the ceiling is reached also there may be optimal paths along which the capture devices of both sectors must be activated in this case sector s 1 emissions are fully abated first before sector 2 abates partially finally we discuss the way heterogeneity of abatement costs causes sectoral energy price paths to differ

assessing distorted trading incentives of balance responsible parties based on the example of the swiss power system power systems require a continuous balance of supply and demand in europe this task is shared between balance responsible parties brps and transmission system operators tsos for this purpose the european electricity sector consists of several markets objective of this paper is to investigate distorted incentives that stem from loopholes in the market design which brps can use to undermine electricity balancing principles in favour of gaming opportunities between the domestic imbalance energy pricing and international wholesale markets these incentives are evaluated using historical data from the swiss power system which features a typical european imbalance pricing mechanism the results imply that little effort would have been needed to make a good profit at the expense of system security the major loophole arises from the interdependence between cross border trading and national imbalance energy pricing bearing in mind the european union s third energy package the importance of national balancing mechanisms will increase strongly in this context national remedies to cope with distorted incentives are outlined and the importance of harmonising balancing markets on an international level is elaborated

too much coal too little oil abstract our main message is that it is optimal to use less coal and more oil once one takes account of coal being a backstop which emits much more co2 than oil the way of achieving this is to have a steeply rising carbon tax during the initial oil only phase a less steeply rising carbon tax during the intermediate phase where oil and coal are used alongside each other and the following coal only phase and a flat carbon tax during the final renewables only phase the laissez faire outcome uses coal forever or starts with oil until it is no longer cost effective to do so and then switches to coal we also analyze the effects on the optimal transition times and carbon tax of a carbon free albeit expensive backstop solar or wind energy subsidizing renewables to just below the cost of coal does not affect the oil only phase the gain in green welfare dominates the welfare cost of the subsidy if the subsidy gap is small and the global warming challenge is acute without a carbon tax a prohibitive coal tax leads to less oil left in situ and substantially delays introduction of renewables but curbs global warming substantially as coal is never used finally we characterize under general conditions what the optimal sequencing oil and coal looks like

on optimal extraction under asymmetric information over reclamation costs abstract polluting exhaustible resource extraction ends with costly reclamation and producers have better information about future reclamation costs than the regulator this paper analyzes optimal contract between the regulator and the mining firm in a two stage model in which extraction and pollution generation is followed by reclamation with asymmetric information over reclamation costs the contract consists of a pollution tax and a mechanism used for cost information revelation and it extracts all the profit from the highest cost type leaves profits for the more efficient types and dictates a reclamation effort that is lower than the complete information effort it is further shown that the optimal pollution tax under asymmetric information can be lower or higher than the tax under complete information in addition the exclusion of the most expensive types is analyzed the results can help to design policies that improve the existing ones by saving public funds by improving the state of the environment and by excluding those mining operations that do not produce net benefits for the society

climate policy and the optimal extraction of high and low carbon fossil fuels we study how restricting co2 emissions affcts resource prices and depletion over time we use a hotelling style model with two nonrenewable fossil fuels that differ in their carbon content e g coal and natural gas and that are imperfect substitutes in final good production we study both an unexpected constraint and an anticipated constraint both shocks induce intertemporal substitution of resource use when emissions are unexpectedly restricted it is cost effective to use high carbon resources relatively more less intensively on impact if this resource is relatively scarce abundant if the emission constraint is anticipated it is cost effective to use relatively more less of the low carbon input before the constraint becomes binding in order to conserve relatively more less of the high carbon input for the period when climate policy is active in case the high carbon resource is relatively scarce abundant

a survey of some recent econometric methods this survey is written mainly for the applied economist though we hope that the specialist econometrician will find something of interest too our aim has been to try to bring the applied worker as up to date as possible and in the process to improve the quality of applied work by providing access to the latest ideas in econometrics we have tried to describe and explain in a relatively non technical way the main developments that have taken place in the last ten years partly for reasons of space the survey is by no means exhaustive but it does cover a wide range of topics in both time series and cross section analysis among the subjects covered are the followoing the nature of data including integrated and fractionally integrated data four estimation methods maximum likelihood method of moments m estimators and non parametric estimation inference with stationary and integrated regressors a comparison of various model evaluation principles the formulation of models including dynamic specification cointegration and conditional expectations in mean and variance copyright 1989 by royal economic society

optimal taxes on fossil fuel in general equilibrium we analyze a dynamic stochastic general equilibrium dsge model with an externality through climate change from using fossil energy our central result is a simple formula for the marginal externality damage of emissions or equivalently for the optimal carbon tax this formula which holds under quite plausible assumptions reveals that the damage is proportional to current gdp with the proportion depending only on three factors i discounting ii the expected damage elasticity how many percent of the output flow is lost from an extra unit of carbon in the atmosphere and iii the structure of carbon depreciation in the atmosphere thus the stochastic values of future output consumption and the atmospheric co2 concentration as well as the paths of technology whether endogenous or exogenous and population and so on all disappear from the formula we find that the optimal tax should be a bit higher than the median or most well known estimates in the literature we also formulate a parsimonious yet comprehensive and easily solved model allowing us to compute the optimal and market paths for the use of different sources of energy and the corresponding climate change we find coal rather than oil to be the main threat to economic welfare largely due to its abundance we also find that the costs of inaction are particularly sensitive to the assumptions regarding the substitutability of different energy sources and technological progress

identifying barriers to large scale integration of variable renewable electricity into the electricity market a literature review of market design abstract for reaching the 2 c climate target the robust growth of electricity generation from variable renewable energy sources vre in the power sector is expected to continue accommodation of the power system to the variable uncertain and locational dependent outputs of vre causes integration costs integrating vre into a well functioning electricity market can minimize integration costs and drive investments in vre and complementary flexible resources however the electricity market in the european union eu as currently designed seems incapable to deliver this end this paper aims to provide a comprehensive literature review of barriers to the large scale market integration of vre in the eu electricity market design based on the set up of the eu electricity market a framework was developed to incorporate the most pertinent market integration barriers and resulting market inefficiencies this paper concludes that an overhaul is needed for the current eu electricity market to address all barriers identified firstly a discrete auction intraday market a marginal pricing balancing market a two price imbalance settlement and a nodal pricing locational marginal pricing mechanism seem more promising in limiting integration costs secondly to support business cases of vre and complementary flexible resources in the electricity market a level playing field should be established and the price cap should be lifted up to the value of lost load voll meanwhile to fit vre s market participation a higher time resolution of trading products and later gate closure time in different submarkets would be required lastly feed in support schemes currently widely used for vre investments might be inconsistent with market integration as they increase integration costs and lock vre investments in a subsidy dependent pathway to avoid such lock in further investigation of alternative capacity based support schemes is recommended

economic and environmental effects under resource scarcity and substitution between renewable and non renewable resources we build a general equilibrium model with renewable non polluting and non renewable polluting resources to analyze the interaction and compatibility between economic growth and a cleaner environment the study is in two phases i resource extraction production costs are constant ii resource producers invest in knowledge to reduce extraction production costs endogenizing technical change with constant costs there is a permanent trade off between economic growth and a cleaner environment with endogenous technical change it is possible to harmonize more output and less emissions by replacing non renewable resources for renewable ones we also conduct a sensitivity analysis to explore three specific policy actions with constant costs the best policy action is the imposition of a higher renewable resources standard while with endogenous technical change under certain conditions all policy interventions may benefit both the economy and the environment

environment directed technical change and economic policy we study the effects of an economic policy in an endogenous growth general equilibrium framework where production of consumption goods requires two resource inputs a polluting non renewable resource and a non polluting labour resource the use of the former contributes to the accumulation of pollution in the atmosphere which affects welfare there is a specific research sector associated with each of those resources we provide a full welfare analysis and we describe the equilibrium paths in a decentralized economy we go on to study the effects of three associated economic policy tools a tax on the polluting resource and two research subsidies we show that the optimal environmental policy has two main effects it delays the extraction of the resource and with it the level of polluting emissions and it reallocates research efforts decreasing the amount put into grey research to the benefit of green research we also show that the environmental policy is grey biased in the short term and green biased in the long term finally we compute the optimal values for these tools

optimum growth and carbon policies with lags in the climate system we study the optimal carbon tax in an economy in which climate change stemming from polluting non renewable resource affects the economy s growth potential our main contribution is to introduce and explore the natural time lag of the climate system between emissions and damages to capital accumulation in an endogenous growth setting this allows us to investigate how optimal climate policy and its interplay with climate dynamics affect long run growth and the transition of the economy towards it without pollution decay a higher speed of emissions diffusion steepens the growth profile of the economy with pollution decay this leads to lower short run but higher long run economic growth during transition poor understanding of the emissions diffusion process leads to suboptimal carbon taxes resource extraction and growth

forecasting with the almost ideal demand system evidence from some alternative dynamic specifications the almost ideal demand system is used as a representation of long run demands in discrete time and continuous time error correction models to produce forecasts of budget shares beyond the sample period the estimated models are subjected to a battery of tests and an analysis of the forecasts indicates that continuous time adjustment mechanisms based around fully modified estimates of the long run preference parameters provide a remarkably accurate method of forecasting budget shares

fossil fuels stock externalities and backstop technology the hotelling exhaustible resource model is extended to include stock pollution and nonpolluting backstop technology it is shown that an optimal energy consumption strategy typically includes a regime in which the two energy sources are consumed simultaneously along this regime fossil fuel consumption decreases and backstop consumption increases together fossil fuel and backstop consumption may form eleven optimal regime combinations a decrease in the backstop price decreases the initial level of optimal emission tax

substitution between biofuels and fossil fuels is there a green paradox we show that i subsidies for renewable energy policies with the intention of encouraging substitution away from fossil fuels may accentuate climate change damages by hastening fossil fuel extraction and that ii the opposite result holds under some specified conditions we focus on the case of subsidies for renewable resources produced under increasing marginal costs and assume that both the renewable resources and the fossil fuels are currently in use such subsidies have a direct effect and an indirect effect working in opposite directions the direct effect is the reduction in demand for fossil fuels at any given price the indirect effect is the reduction in the current equilibrium price for fossil fuels which tends to increase the amount of fossil fuels demanded whether the sum of the two effects will actually result in an earlier or later date of exhaustion of the stock of fossil fuels depends on the curvature of the demand curve for energy and of the supply curve for the renewable substitute

learning by doing and the costs of a backstop for energy transition and sustainability we assess the impact of being able to substitute an unlimited but costly energy substitute like wind solar for a non renewable resource like oil coal in a model of sustainable growth the prospects for sustainability on the optimal path depend crucially on the costs of this substitute furthermore the poorer a country measured in terms of capital stock at a given point in time the later it should switch to the renewable substitute and the more likely it will be unsustainable taking learning by doing in account we find that this leads to an earlier switching time but does not guarantee sustainability

optimal abatement of carbon emission flows we study optimal carbon capture and storage ccs from point sources taking into account damages incurred from the accumulation of carbon in the atmosphere and exhaustibility of fossil fuel reserves high carbon concentrations call for full ccs meaning zero net emissions we identify conditions under which partial or no ccs is optimal in the absence of ccs the co2 stock might be inverted u shaped with ccs more complicated behavior may arise it can be optimal to have full capture initially yielding a decreasing stock then partial capture while keeping the co2 stock constant and a final phase without capture but with an inverted u shaped co2 stock we also introduce the option of adaptation and provide a unified theory regarding the optimal use of ccs and adaptation

a hotelling model with a ceiling on the stock of pollution abstract environmental agreements such as the kyoto protocol aim to stabilize the amount of carbon in the atmosphere which is mainly caused by the burning of nonrenewable resources such as coal we characterize the solution to the textbook hotelling model when there is a ceiling on the stock of emissions we consider both increasing and decreasing demand for energy we show that when the ceiling is binding both the low cost nonrenewable resource and the high cost renewable resource may be used jointly a key implication is that if energy demand were to decline in the long run we may supplement energy supply through clean renewables to meet the environmental standard but then revert back to using only dirty fossil fuels in the future when the ceiling has become non binding that is the much heralded societal transition to clean energy resources may be short lived

trade with polluting nonrenewable resources abstract the paper considers nonrenewable resource extraction in a situation where the resource buyers have formed a government which applies emission taxation for slowing pollution accumulation and the sellers are competitive or a resource cartel the noncompetitive situation is studied as a stackelberg differential game which the cartel leads it is first assumed that extraction costs do not depend on the resource stock level and that the pollution stock does not decay in the time consistent and markov perfect equilibrium the sellers monopoly power vanishes asymptotically the sellers market power reduces the buyers emission tax at each point in time in the stackelberg equilibrium the emission tax is below the marginal present value of pollution damage if pollution decays and extraction costs depend on the resource stock level buyers have monopsony power and the ability of sellers to receive emission tax revenues is weakened when the rate of pollution decay is high the producer price falls below the pareto optimal level

energy transition under irreversibility a two sector approach in this paper we analyze the optimal energy transition of a two sector economy energy and final goods with exhaustible oil reserves a renewable source of energy and a pollution threat the latter corresponds to a pollution threshold above which a part of the capital is lost following flooding for instance we show that the optimal energy transition path may correspond to a corner regime in which the economy starts using both resources then crosses the pollution threshold and therefore loses a part of its capital at the end the sole adoption of the renewable energy is optimal only in the long run this result is in line with the asymptotic energy transition arguments stating that the transition to clean energy may happen only in the long run we also show that economy reduces the use of energy resource as long as the productivity of capital and energy services is high therefore public policies should promote investments in energy innovation that targets productive sector home appliances and buildings and helps to save both money and energy we extend the present model to allow for additional investment in energy saving technologies our main results show that this additional investment favours the energy transition in the sense that it increases the time within which the economy may experience the catastrophe and the welfare of the society for policy implications economic instruments such as taxes on dirty energy subsidies on clean energy or incentives for energy saving technologies need to be implemented in order to promote the energy transition this is particularly important for developing countries that mostly rely on polluting energy resources and are the most vulnerable to climate change but those economic instruments should be carefully designed in line with the asymptotic energy transition result

economic growth and transitions between renewable and nonrenewable energy resources abstract we study transitions between nonrenewable and renewable energy forms at different development stages of an economy it is shown that in the historical context the emphasis on energy production may evolve from renewables to nonrenewables and back to renewables typically both energy forms are used simultaneously along the equilibrium path nonrenewable resource consumption may increase and their price decrease an inverted u relation between carbon emissions and income level may follow even without environmental policy

optimal timing of carbon capture policies under learning by doing abstract using a standard hotelling model of resource exploitation we determine the optimal energy consumption paths from three options dirty coal which is non renewable and carbon emitting clean coal which is also non renewable but carbon free thanks to carbon capture and storage ccs and solar energy which is renewable and carbon free we assume that the atmospheric carbon stock cannot exceed an exogenously given ceiling taking into account learning by doing in ccs technology we show the following results i clean coal exploitation cannot begin before the outset of the carbon constrained phase and must stop strictly before the end of this phase ii the energy price path can evolve non monotonically over time and iii when the solar cost is low enough an unusual energy consumption sequence along with solar energy is interrupted for some time and replacement by clean coal may exist

absolute abundance and relative scarcity environmental policy with implementation lags we study the effectiveness of environmental policy in a model with nonrenewable resources and an unavoidable implementation lag we find that a time lag between the announcement and the implementation of an emissions quota induces an increase in emissions in the period between the policy s announcement and implementation since a binding constraint on emissions restricts energy use during the implementation phase more of the resources must be extracted outside of it we call this the abundance effect in the case of multiple resources that differ in their pollution intensity a second channel emerges since cleaner sources are relatively more valuable when the policy is implemented it is optimal to conserve them before the cap is enforced this ordering effect tends to induce a switch to dirtier resources before the policy is implemented compounding the increase in emissions via the abundance channel using the announcement lag in title iv of the 1990 caaa as a case study we are able to empirically show that the abundance effect and ordering effect are both statistically and economically significant we discuss a number of alternative policy options to deal with these undesirable side effects of policy announcements