Abstract
We show how a fossil fuelmonopoly responds to a carbon-free substitute becoming available at some uncertain point in the future if demand is isoelastic and variable extraction costs are zero but upfront exploration investment costs have to be made. Before the breakthrough, oil reserves are depleted too rapidly; afterwards, the oil depletion rate drops and the oil price jumps up by discrete amounts. Subsidizing green R&D to speed up the breakthrough speeds up oil extraction before the breakthrough, but more oil is left in situ as exploration investment is lower. The latter can offset the Green Paradox effect.
| Original language | English |
|---|---|
| Pages (from-to) | 52-70 |
| Number of pages | 19 |
| Journal | FinanzArchiv |
| Volume | 74 |
| Issue number | 1 |
| DOIs | |
| Publication status | Published - 1 Mar 2018 |
Fingerprint
Keywords
- Green Paradox
- Green R&D
- Regime shift
Cite this
}
Breakthrough renewables and the green paradox. / Van Der Ploeg, Frederick.
In: FinanzArchiv, Vol. 74, No. 1, 01.03.2018, p. 52-70.Research output: Contribution to Journal › Article › Academic › peer-review
TY - JOUR
T1 - Breakthrough renewables and the green paradox
AU - Van Der Ploeg, Frederick
PY - 2018/3/1
Y1 - 2018/3/1
N2 - We show how a fossil fuelmonopoly responds to a carbon-free substitute becoming available at some uncertain point in the future if demand is isoelastic and variable extraction costs are zero but upfront exploration investment costs have to be made. Before the breakthrough, oil reserves are depleted too rapidly; afterwards, the oil depletion rate drops and the oil price jumps up by discrete amounts. Subsidizing green R&D to speed up the breakthrough speeds up oil extraction before the breakthrough, but more oil is left in situ as exploration investment is lower. The latter can offset the Green Paradox effect.
AB - We show how a fossil fuelmonopoly responds to a carbon-free substitute becoming available at some uncertain point in the future if demand is isoelastic and variable extraction costs are zero but upfront exploration investment costs have to be made. Before the breakthrough, oil reserves are depleted too rapidly; afterwards, the oil depletion rate drops and the oil price jumps up by discrete amounts. Subsidizing green R&D to speed up the breakthrough speeds up oil extraction before the breakthrough, but more oil is left in situ as exploration investment is lower. The latter can offset the Green Paradox effect.
KW - Green Paradox
KW - Green R&D
KW - Regime shift
UR - http://www.scopus.com/inward/record.url?scp=85045189162&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85045189162&partnerID=8YFLogxK
U2 - 10.1628/001522118X15101422148687
DO - 10.1628/001522118X15101422148687
M3 - Article
VL - 74
SP - 52
EP - 70
JO - Finanz-archiv
JF - Finanz-archiv
SN - 0015-2218
IS - 1
ER -