A Hotelling model with a ceiling on the stock of pollution

    Authors

    U. Chakravorty; B. Magne;M. Moreaux

    Comments

    Authors: contact us about adding a copy of your work at STARS@ucf.edu

    Abbreviated Journal Title

    J. Econ. Dyn. Control

    Keywords

    environmental agreements; externalities; fossil fuels; nonrenewable; resources; nonstationary demand; NATURAL-RESOURCE USE; FOSSIL-FUELS; POLICY; EXTERNALITIES; TECHNOLOGY; Economics

    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. (c) 2005 Elsevier B.V. All rights reserved.

    Journal Title

    Journal of Economic Dynamics & Control

    Volume

    30

    Issue/Number

    12

    Publication Date

    1-1-2006

    Document Type

    Article

    Language

    English

    First Page

    2875

    Last Page

    2904

    WOS Identifier

    WOS:000242798000022

    ISSN

    0165-1889

    Share

    COinS