Abstract
We argue that expectations about future energy use affect the transition from fossil
to renewables, because of an interaction between innovation and resource scarcity. The paper presents a model of directed technical change to study this interaction. We find that fossil-saving technical change erodes the incentives to implement renewables. Conversely, the anticipation of a transition to renewables diminishes the incentives to invest in fossil technology. As a result, two equilibria may arise, one with a transition to renewables and with low fossil efficiency, and one without renewables and with high fossil efficiency. Expectations determine which equilibrium arises in equilibrium.
to renewables, because of an interaction between innovation and resource scarcity. The paper presents a model of directed technical change to study this interaction. We find that fossil-saving technical change erodes the incentives to implement renewables. Conversely, the anticipation of a transition to renewables diminishes the incentives to invest in fossil technology. As a result, two equilibria may arise, one with a transition to renewables and with low fossil efficiency, and one without renewables and with high fossil efficiency. Expectations determine which equilibrium arises in equilibrium.
| Original language | English |
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| Place of Publication | Amsterdam |
| Number of pages | 62 |
| Volume | 14-100/VIII |
| Publication status | Published - 1 Aug 2014 |
Publication series
| Name | Tinbergen Institute Discussion Paper |
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