Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2014-08-01
Revision-Date: 2016-07-14
Number: 14-100/VIII
Author-Name: Gerard van der Meijden
Author-Workplace-Name: VU University Amsterdam
Author-Name: Sjak Smulders
Author-Workplace-Name: Tilburg University, the Netherlands
Title: Carbon Lock-In: The Role of Expectations
Abstract: We argue that expectations about future energy use affect the transition from fossil to renewables, because of an interaction between innovation and resource scarcity. The paper presents a model of directed technical change to study this interaction. We find that fossil-saving technical change erodes the incentives to implement the renewables. Conversely, the anticipation of a transition to renewables diminishes the incentives to invest in fossil  technology. As a result, two equilibria may arise, one with a transition to renewables and with low fossil efficiency, and one without renewables and with high fossil efficiency. Expectations determine which equilibrium arises in equilibrium.
Classification-JEL: O30, Q32, Q42, Q55
Keywords: Directed technical change, energy transition, multiple equilibria
File-Url: https://papers.tinbergen.nl/14100.pdf
File-Format: application/pdf
File-Size: 860006 bytes
Handle: RePEc:tin:wpaper:20140100