Vintage capital and the diffusion of clean technologies

T.T. Azomahou*, R. Boucekkine, P. van Nguyen

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

We develop a general equilibrium vintage capital model with energy-saving technological progress and an explicit energy sector to study the impact of investment subsidies on equilibrium investment and output. Energy and capital are assumed to be complementary in the production process. New machines are less energy-consuming and scrapping is endogenous. Two polar market structures are considered for the energy market: free entry and natural monopoly. First, it is shown that investment subsidies may induce a larger equilibrium investment into cleaner technologies either under free entry or natural monopoly. However, in the latter case, this happens if and only if the average cost is decreasing fast enough. Second, larger diffusion rates do not necessarily mean lower energy consumption at equilibrium, which may explain certain empirical observations.

Original languageEnglish
Pages (from-to)277-300
Number of pages24
JournalInternational Journal of Economic Theory
Volume8
Issue number3
DOIs
Publication statusPublished - Sep 2012

Keywords

  • energy-saving technological progress
  • vintage capital
  • market imperfections
  • natural monopoly
  • investment subsidies
  • O40
  • E22
  • Q40
  • ENERGY-EFFICIENCY
  • POWER-GENERATION
  • TECHNICAL CHANGE
  • GROWTH
  • MARKET
  • MODEL
  • FIRMS
  • OBSOLESCENCE
  • REPLACEMENT
  • ENVIRONMENT

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