Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/68192
Authors: 
Hassler, John
Sinn, Hans-Werner
Year of Publication: 
2012
Series/Report no.: 
CESifo Working Paper: Energy and Climate Economics 4016
Abstract: 
We build a two-sector dynamic general equilibrium model with one-sided substitutability between fossil carbon and biocarbon. One shock only, the discovery of the technology to use fossil fuels, leads to a transition from an initial pre-industrial phase to three following phases: a pure fossil carbon phase, a mixed fossil and biocarbon phase and an absorbing biocarbon phase. The increased competition for biocarbon during phase 3 and 4 leads to increasing food prices. We provide closed form expressions for this price increase. Our calibration leads to a price increase of 40% if capital and labor are allowed to move to the biocarbon sector. Otherwise, the price increase is much higher. We also use the model to analyze the consequences of restrictions on using biocarbon as fuel. We show that such restrictions can lead to a substantially slower global warming due to an endogenous slowdown of fossil fuel extraction.
Subjects: 
hotelling rule
fossil carbon
biocarbon
transition phases
oil price
food price
global warming
JEL: 
Q54
Q32
O41
Document Type: 
Working Paper

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