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Abandoning Fossil Fuel: How Fast and How Much
Author(s) -
Rezai Armon,
Van Der Ploeg Frederick
Publication year - 2017
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/manc.12189
Subject(s) - carbon tax , renewable energy , subsidy , economics , natural resource economics , climate change , fossil fuel , carbon fibers , greenhouse gas , energy transition , green growth , climate change mitigation , market economy , ecology , engineering , waste management , medicine , materials science , alternative medicine , pathology , sustainable development , composite number , composite material , panacea (medicine) , biology
Keeping climate change within limits requires that most of the available carbon‐based energy sources need to be abandoned underground. We study how fast and how much this transition to carbon‐free energy needs to occur within a welfare‐maximizing Ramsey growth model of climate change. Our model also addresses the market failure in the development of clean energy which leads to an under‐provision of renewable energy, delays the transition time to the carbon‐free era and reduces the amount of dirty fuels locked up in situ . Optimal policy requires an aggressive renewables subsidy in the near term and a gradually rising carbon tax which falls in long run. We also study the transition timing and the performance of recently proposed policy rules for the carbon tax.