Uncertain long-run emission targets, CO2 price and global energy transition: a general equilibrium approach
(2010) Energy Policy — Vol. 38, n° 9, p. 5108-5122 (2010)
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- Abstract
- The persistent uncertainty about mid-century CO2 emissions targets is likely to affect not only the technological choices that energy-producing firms will make in the future but also their current investment decisions. We illustrate this effect on CO2 price and global entry transition within a MERGE-type general-equilibrium model framework, by considering simple stochastic CO2 policy scenarios. In these scenarios, economic agents know that credible long-run CO2 emissions targets will be set in 2020, with two possible outcomes: either a "hard cap" or a "soft cap". Each scenario is characterized by the relative probabilities of both possible caps. We derive consistent stochastic trajectories - with two branches after 2020 - for prices and quantities of energy commodities and CO2 emission permits. The impact of uncertain long-run CO2 emissions targets on prices and technological trajectories is discussed. In addition, a simple marginal approach allows us to analyze the Hotelling rule with risk premia observed for certain scenarios.
- Affiliations
IFP Economics Department
Citations
Durand-Lasserve, O., Pierru, A., & Smeers, Y. (2010). Uncertain long-run emission targets, CO2 price and global energy transition: a general equilibrium approach. Energy Policy, 38(9), 5108-5122. https://doi.org/10.1016/j.enpol.2010.04.041 (Original work published 2010)