Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/173855
Authors: 
Rozenberg, Julie
Vogt-Schilb, Adrien
Hallegatte, Stephane
Year of Publication: 
2017
Series/Report no.: 
IDB Working Paper Series IDB-WP-782
Abstract: 
To mitigate climate change, some governments opt for instruments focused on investment, like performance standards or feebates, instead of carbon prices. We compare these policies in a Ramsey model with clean and polluting capital, irreversible investment and a climate constraint. Alternative instruments imply different transitions to the same balanced growth path. The optimal carbon price minimizes the discounted social cost of the transition to clean capital, but imposes immediate private costs that disproportionately affect the current owners of polluting capital, in particular in the form of stranded assets. A phased-in carbon price can avoid stranded assets but still result in a drop of income for the owners of polluting capital when it is implemented. Second-best standards or feebates on new investment lead to higher total costs but avoid stranded assets, preserve the revenues of vested interests, and smooth abatement costs over individuals and time. These results suggest a trade-off between political feasibility and cost-effectiveness of environmental policies.
Subjects: 
public acceptability
policy instrument
climate change
intergenerational equity
energy efficiency standards
mothballing
early-scrapping
premature retirement
JEL: 
L50
O33
O44
Q52
Q54
Q58
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by-nc-nd/3.0/igo/legalcode
Document Type: 
Working Paper

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