Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/327673 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 12063
Publisher: 
Munich Society for the Promotion of Economic Research - CESifo GmbH, Munich
Abstract: 
We study the interaction of climate policies and investments into fossil and renewable energy generation capacity under political uncertainty caused by democratic elections. We develop an overlapping generations model, where elected governments determine carbon taxation and green investment subsidies, and individuals make investments into fossil and renewable capacity. We find that some fossil investments become stranded assets if the party offering the higher carbon tax is unexpectedly elected. Green investment subsidies can be used by governments to bind the hands of their successor. By using the subsidy, the party in power can influence the capital stocks and, therefore, the climate policy of the following period to reduce or even avoid potentially stranded assets. With endogenous reelection probability, the impact on the capital stocks can also be used strategically to manipulate the reelection probabilities in favor of the party in power.
Subjects: 
stranded assets
elections
fossil fuel
renewable energy
carbon tax
investment subsidy
JEL: 
D72
H23
Q54
Q58
Document Type: 
Working Paper
Appears in Collections:

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.