Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/73929
Authors: 
van der Werf, Edwin
Smulders, Sjak
Year of Publication: 
2007
Series/Report no.: 
Nota di Lavoro, Fondazione Eni Enrico Mattei 83.2007
Abstract: 
We study how restricting CO2 emissions affects resource prices and depletion over time. We use a Hotelling-style model with two non-renewable fossil fuels that differ in their carbon content (e.g. coal and natural gas) and in addition are imperfect substitutes in final good production. We show that an economy facing a CO2 flow-constraint may substitute towards the relatively dirty input. As the economy tries to maximise output per unit of emissions it is not only carbon content that matters: productivity matters as well. With an announced constraint the economy first substitutes towards the less productive input such that more of the productive input is available when constrained. Preliminary empirical results suggest that it is cost-effective to substitute away from dirty coal to cleaner oil or gas, but to substitute from natural gas towards the dirtier input oil.
Subjects: 
Climate Policy
Non-Renewable Resources
Input Substitution
JEL: 
O13
Q31
Q43
Document Type: 
Working Paper

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