Global competition dynamics of fossil fuels and renewable energy under climate policies and peak oil: A behavioural model

Paolo Zeppini*, Jeroen C.J.M. van den Bergh

*Corresponding author for this work

Research output: Contribution to JournalArticleAcademicpeer-review

Abstract

We develop a stochastic decision model to analyse the global competitive dynamics of fossil fuels and renewable energy. It describes coal, oil/gas, solar and wind. These differ not only in pollution intensities but also in profitability and innovation potential. The model accounts for the effect of learning curves, path-dependence and climate policies. Adoption shares endogenously affect agents' utility through increasing returns to adoption, learning, and a ‘peak oil’ capacity constraint. We find that peak oil induces a transition to coal rather than renewable energy, which worsens climate change. By introducing climate policies - such as a carbon tax, market adoption or R&D subsidies for renewables, and eliminating existing subsidies for fossil fuels - we identify potential transition patterns to a low-carbon energy system. Model analysis clarifies two main features of climate policies: which ones solve the climate problem, i.e. do not surpass the critical carbon budget; and how uncertain or variable are final market shares of energy sources.

Original languageEnglish
Article number110907
Pages (from-to)1-24
Number of pages24
JournalEnergy Policy
Volume136
Early online date25 Nov 2019
DOIs
Publication statusPublished - 1 Jan 2020

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Keywords

  • Climate change
  • Energy policy
  • Externalities
  • Learning
  • Peak oil

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