Transition to Clean Capital, Irreversible Investment and Stranded Assets

This paper uses a Ramsey model with two types of capital to analyze the optimal transition to clean capital when polluting investment is irreversible. The cost of climate mitigation decomposes as a technical cost of using clean instead of polluting...

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Main Authors:	Rozenberg, Julie, Vogt-Schilb, Adrien, Hallegatte, Stephane
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2014
Subjects:	ABATEMENT ABATEMENT COST ABATEMENT COSTS AFFILIATED ORGANIZATIONS ALLOCATION ALLOWANCE ALLOWANCE ALLOCATION ARBITRAGE ASSETS ATMOSPHERE ATMOSPHERIC CONCENTRATION CAPITAL COSTS CAPITAL MARKETS CAPITAL PRODUCES CAPITAL STOCKS CARBON CARBON BUDGET CARBON EMISSIONS CARBON INTENSITY CARBON POLICY CARBON PRICE CARBON PRICES CARBON TAX CARBON TAXES CLEAN AIR CLEAN ELECTRICITY CLEAN ENERGY CLEAN TECHNOLOGIES CLIMATE CLIMATE CHANGE CLIMATE CHANGE MITIGATION CLIMATE DAMAGES CLIMATE OBJECTIVES CLIMATE POLICIES CLIMATE POLICY CO CO2 COAL COAL PLANT COLLECTIVE ACTION CONCENTRATION CEILING CONSUMERS COST OF ABATEMENT COST OF CARBON DAMAGES DEPRECIATION DEVELOPMENT POLICY DISCOUNT RATE DISCOUNT RATES DISTRIBUTIONAL IMPACTS ECOLOGICAL ECONOMICS ECONOMIC CONDITIONS ECONOMIC EFFICIENCY ECONOMIC GROWTH ECONOMICS ELASTICITY ELASTICITY OF SUBSTITUTION ELECTRICITY PRODUCTION EMISSION EMISSION ALLOWANCES EMISSION REDUCTIONS EMISSIONS ENERGY ECONOMICS ENERGY EFFICIENCY ENERGY EFFICIENCY STANDARDS ENERGY INFRASTRUCTURE ENERGY INTENSITY ENERGY POLICY ENERGY SAVINGS ENERGY USE ENVIRONMENTAL ECONOMICS ENVIRONMENTAL POLICY EQUILIBRIUM EQUILIBRIUM ANALYSIS EXTERNALITIES EXTERNALITY FINANCIAL MARKETS FINANCIAL SUPPORT FUNCTIONAL FORMS GHG GLOBAL EMISSIONS GLOBAL WARMING GREENHOUSE GREENHOUSE EFFECT GREENHOUSE GASES GREENHOUSE GASES EMISSIONS HUMAN CAPITAL INCOME INCOME EFFECT INTEREST RATE INTERGENERATIONAL EQUITY INVESTMENT BEHAVIOR INVESTMENT REGULATION JOBS LAISSEZ-FAIRE LOW-CARBON MARGINAL COST MARGINAL PRODUCTIVITY MARGINAL UTILITY MARKET FAILURE MULTIPLIERS NEGATIVE EXTERNALITY NOX NUCLEAR POWER PATENTS PERFORMANCE STANDARD PERFORMANCE STANDARDS POLITICAL ECONOMY POWER PLANTS PRESENT VALUE PRICE INCREASE PRODUCTION FUNCTION PROFITABILITY PUBLIC GOODS RATE OF RETURN REBATES REGULATORY CAPTURE RELATIVE PRICE RESOURCE ECONOMICS SAVINGS SECONDARY MARKETS SHADOW PRICE SHADOW PRICES SOCIAL COST STRANDED ASSETS SUBSTITUTION SUBSTITUTION EFFECT TAX TAX REVENUE TRADE SYSTEM TRADE-OFF UNEMPLOYMENT UTILITY FUNCTION UTILITY MAXIMIZATION VOTERS WEALTH WIND
Online Access:	http://documents.worldbank.org/curated/en/2014/05/19457792/transition-clean-capital-irreversible-investment-stranded-assets http://hdl.handle.net/10986/18343

id	okr-10986-18343
recordtype	oai_dc
spelling	okr-10986-183432021-04-23T14:03:44Z Transition to Clean Capital, Irreversible Investment and Stranded Assets Rozenberg, Julie Vogt-Schilb, Adrien Hallegatte, Stephane ABATEMENT ABATEMENT COST ABATEMENT COSTS AFFILIATED ORGANIZATIONS ALLOCATION ALLOWANCE ALLOWANCE ALLOCATION ARBITRAGE ASSETS ATMOSPHERE ATMOSPHERIC CONCENTRATION CAPITAL COSTS CAPITAL MARKETS CAPITAL PRODUCES CAPITAL STOCKS CARBON CARBON BUDGET CARBON EMISSIONS CARBON INTENSITY CARBON POLICY CARBON PRICE CARBON PRICES CARBON TAX CARBON TAXES CLEAN AIR CLEAN ELECTRICITY CLEAN ENERGY CLEAN TECHNOLOGIES CLIMATE CLIMATE CHANGE CLIMATE CHANGE MITIGATION CLIMATE DAMAGES CLIMATE OBJECTIVES CLIMATE POLICIES CLIMATE POLICY CO CO2 COAL COAL PLANT COLLECTIVE ACTION CONCENTRATION CEILING CONSUMERS COST OF ABATEMENT COST OF CARBON DAMAGES DEPRECIATION DEVELOPMENT POLICY DISCOUNT RATE DISCOUNT RATES DISTRIBUTIONAL IMPACTS ECOLOGICAL ECONOMICS ECONOMIC CONDITIONS ECONOMIC EFFICIENCY ECONOMIC GROWTH ECONOMICS ELASTICITY ELASTICITY OF SUBSTITUTION ELECTRICITY PRODUCTION EMISSION EMISSION ALLOWANCES EMISSION REDUCTIONS EMISSIONS ENERGY ECONOMICS ENERGY EFFICIENCY ENERGY EFFICIENCY STANDARDS ENERGY INFRASTRUCTURE ENERGY INTENSITY ENERGY POLICY ENERGY SAVINGS ENERGY USE ENVIRONMENTAL ECONOMICS ENVIRONMENTAL POLICY EQUILIBRIUM EQUILIBRIUM ANALYSIS EXTERNALITIES EXTERNALITY FINANCIAL MARKETS FINANCIAL SUPPORT FUNCTIONAL FORMS GHG GLOBAL EMISSIONS GLOBAL WARMING GREENHOUSE GREENHOUSE EFFECT GREENHOUSE GASES GREENHOUSE GASES EMISSIONS HUMAN CAPITAL INCOME INCOME EFFECT INTEREST RATE INTERGENERATIONAL EQUITY INVESTMENT BEHAVIOR INVESTMENT REGULATION JOBS LAISSEZ-FAIRE LOW-CARBON MARGINAL COST MARGINAL PRODUCTIVITY MARGINAL UTILITY MARKET FAILURE MULTIPLIERS NEGATIVE EXTERNALITY NOX NUCLEAR POWER PATENTS PERFORMANCE STANDARD PERFORMANCE STANDARDS POLITICAL ECONOMY POWER PLANTS PRESENT VALUE PRICE INCREASE PRODUCTION FUNCTION PROFITABILITY PUBLIC GOODS RATE OF RETURN REBATES REGULATORY CAPTURE RELATIVE PRICE RESOURCE ECONOMICS SAVINGS SECONDARY MARKETS SHADOW PRICE SHADOW PRICES SOCIAL COST STRANDED ASSETS SUBSTITUTION SUBSTITUTION EFFECT TAX TAX REVENUE TRADE SYSTEM TRADE-OFF UNEMPLOYMENT UTILITY FUNCTION UTILITY MAXIMIZATION VOTERS WEALTH WIND This paper uses a Ramsey model with two types of capital to analyze the optimal transition to clean capital when polluting investment is irreversible. The cost of climate mitigation decomposes as a technical cost of using clean instead of polluting capital and a transition cost from the irreversibility of pre-existing polluting capital. With a carbon price, the transition cost can be limited by underutilizing polluting capital, at the expense of a loss in the value of polluting assets (stranded assets) and a drop in income. In contrast, policy instruments that focus on redirecting investments -- such as feebates or environmental standards -- prevent underutilization of existing capital, avoid stranded assets, and reduce short-term losses; but they reduce emissions more slowly and increase the intertemporal cost of the transition. The paper investigates inter- and intra-generational distributional impacts and the political acceptability of climate change mitigation policy instruments. 2014-05-15T16:03:04Z 2014-05-15T16:03:04Z 2014-05 http://documents.worldbank.org/curated/en/2014/05/19457792/transition-clean-capital-irreversible-investment-stranded-assets http://hdl.handle.net/10986/18343 English en_US Policy Research Working Paper;No. 6859 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English en_US
topic	ABATEMENT ABATEMENT COST ABATEMENT COSTS AFFILIATED ORGANIZATIONS ALLOCATION ALLOWANCE ALLOWANCE ALLOCATION ARBITRAGE ASSETS ATMOSPHERE ATMOSPHERIC CONCENTRATION CAPITAL COSTS CAPITAL MARKETS CAPITAL PRODUCES CAPITAL STOCKS CARBON CARBON BUDGET CARBON EMISSIONS CARBON INTENSITY CARBON POLICY CARBON PRICE CARBON PRICES CARBON TAX CARBON TAXES CLEAN AIR CLEAN ELECTRICITY CLEAN ENERGY CLEAN TECHNOLOGIES CLIMATE CLIMATE CHANGE CLIMATE CHANGE MITIGATION CLIMATE DAMAGES CLIMATE OBJECTIVES CLIMATE POLICIES CLIMATE POLICY CO CO2 COAL COAL PLANT COLLECTIVE ACTION CONCENTRATION CEILING CONSUMERS COST OF ABATEMENT COST OF CARBON DAMAGES DEPRECIATION DEVELOPMENT POLICY DISCOUNT RATE DISCOUNT RATES DISTRIBUTIONAL IMPACTS ECOLOGICAL ECONOMICS ECONOMIC CONDITIONS ECONOMIC EFFICIENCY ECONOMIC GROWTH ECONOMICS ELASTICITY ELASTICITY OF SUBSTITUTION ELECTRICITY PRODUCTION EMISSION EMISSION ALLOWANCES EMISSION REDUCTIONS EMISSIONS ENERGY ECONOMICS ENERGY EFFICIENCY ENERGY EFFICIENCY STANDARDS ENERGY INFRASTRUCTURE ENERGY INTENSITY ENERGY POLICY ENERGY SAVINGS ENERGY USE ENVIRONMENTAL ECONOMICS ENVIRONMENTAL POLICY EQUILIBRIUM EQUILIBRIUM ANALYSIS EXTERNALITIES EXTERNALITY FINANCIAL MARKETS FINANCIAL SUPPORT FUNCTIONAL FORMS GHG GLOBAL EMISSIONS GLOBAL WARMING GREENHOUSE GREENHOUSE EFFECT GREENHOUSE GASES GREENHOUSE GASES EMISSIONS HUMAN CAPITAL INCOME INCOME EFFECT INTEREST RATE INTERGENERATIONAL EQUITY INVESTMENT BEHAVIOR INVESTMENT REGULATION JOBS LAISSEZ-FAIRE LOW-CARBON MARGINAL COST MARGINAL PRODUCTIVITY MARGINAL UTILITY MARKET FAILURE MULTIPLIERS NEGATIVE EXTERNALITY NOX NUCLEAR POWER PATENTS PERFORMANCE STANDARD PERFORMANCE STANDARDS POLITICAL ECONOMY POWER PLANTS PRESENT VALUE PRICE INCREASE PRODUCTION FUNCTION PROFITABILITY PUBLIC GOODS RATE OF RETURN REBATES REGULATORY CAPTURE RELATIVE PRICE RESOURCE ECONOMICS SAVINGS SECONDARY MARKETS SHADOW PRICE SHADOW PRICES SOCIAL COST STRANDED ASSETS SUBSTITUTION SUBSTITUTION EFFECT TAX TAX REVENUE TRADE SYSTEM TRADE-OFF UNEMPLOYMENT UTILITY FUNCTION UTILITY MAXIMIZATION VOTERS WEALTH WIND
spellingShingle	ABATEMENT ABATEMENT COST ABATEMENT COSTS AFFILIATED ORGANIZATIONS ALLOCATION ALLOWANCE ALLOWANCE ALLOCATION ARBITRAGE ASSETS ATMOSPHERE ATMOSPHERIC CONCENTRATION CAPITAL COSTS CAPITAL MARKETS CAPITAL PRODUCES CAPITAL STOCKS CARBON CARBON BUDGET CARBON EMISSIONS CARBON INTENSITY CARBON POLICY CARBON PRICE CARBON PRICES CARBON TAX CARBON TAXES CLEAN AIR CLEAN ELECTRICITY CLEAN ENERGY CLEAN TECHNOLOGIES CLIMATE CLIMATE CHANGE CLIMATE CHANGE MITIGATION CLIMATE DAMAGES CLIMATE OBJECTIVES CLIMATE POLICIES CLIMATE POLICY CO CO2 COAL COAL PLANT COLLECTIVE ACTION CONCENTRATION CEILING CONSUMERS COST OF ABATEMENT COST OF CARBON DAMAGES DEPRECIATION DEVELOPMENT POLICY DISCOUNT RATE DISCOUNT RATES DISTRIBUTIONAL IMPACTS ECOLOGICAL ECONOMICS ECONOMIC CONDITIONS ECONOMIC EFFICIENCY ECONOMIC GROWTH ECONOMICS ELASTICITY ELASTICITY OF SUBSTITUTION ELECTRICITY PRODUCTION EMISSION EMISSION ALLOWANCES EMISSION REDUCTIONS EMISSIONS ENERGY ECONOMICS ENERGY EFFICIENCY ENERGY EFFICIENCY STANDARDS ENERGY INFRASTRUCTURE ENERGY INTENSITY ENERGY POLICY ENERGY SAVINGS ENERGY USE ENVIRONMENTAL ECONOMICS ENVIRONMENTAL POLICY EQUILIBRIUM EQUILIBRIUM ANALYSIS EXTERNALITIES EXTERNALITY FINANCIAL MARKETS FINANCIAL SUPPORT FUNCTIONAL FORMS GHG GLOBAL EMISSIONS GLOBAL WARMING GREENHOUSE GREENHOUSE EFFECT GREENHOUSE GASES GREENHOUSE GASES EMISSIONS HUMAN CAPITAL INCOME INCOME EFFECT INTEREST RATE INTERGENERATIONAL EQUITY INVESTMENT BEHAVIOR INVESTMENT REGULATION JOBS LAISSEZ-FAIRE LOW-CARBON MARGINAL COST MARGINAL PRODUCTIVITY MARGINAL UTILITY MARKET FAILURE MULTIPLIERS NEGATIVE EXTERNALITY NOX NUCLEAR POWER PATENTS PERFORMANCE STANDARD PERFORMANCE STANDARDS POLITICAL ECONOMY POWER PLANTS PRESENT VALUE PRICE INCREASE PRODUCTION FUNCTION PROFITABILITY PUBLIC GOODS RATE OF RETURN REBATES REGULATORY CAPTURE RELATIVE PRICE RESOURCE ECONOMICS SAVINGS SECONDARY MARKETS SHADOW PRICE SHADOW PRICES SOCIAL COST STRANDED ASSETS SUBSTITUTION SUBSTITUTION EFFECT TAX TAX REVENUE TRADE SYSTEM TRADE-OFF UNEMPLOYMENT UTILITY FUNCTION UTILITY MAXIMIZATION VOTERS WEALTH WIND Rozenberg, Julie Vogt-Schilb, Adrien Hallegatte, Stephane Transition to Clean Capital, Irreversible Investment and Stranded Assets
relation	Policy Research Working Paper;No. 6859
description	This paper uses a Ramsey model with two types of capital to analyze the optimal transition to clean capital when polluting investment is irreversible. The cost of climate mitigation decomposes as a technical cost of using clean instead of polluting capital and a transition cost from the irreversibility of pre-existing polluting capital. With a carbon price, the transition cost can be limited by underutilizing polluting capital, at the expense of a loss in the value of polluting assets (stranded assets) and a drop in income. In contrast, policy instruments that focus on redirecting investments -- such as feebates or environmental standards -- prevent underutilization of existing capital, avoid stranded assets, and reduce short-term losses; but they reduce emissions more slowly and increase the intertemporal cost of the transition. The paper investigates inter- and intra-generational distributional impacts and the political acceptability of climate change mitigation policy instruments.
format	Publications & Research :: Policy Research Working Paper
author	Rozenberg, Julie Vogt-Schilb, Adrien Hallegatte, Stephane
author_facet	Rozenberg, Julie Vogt-Schilb, Adrien Hallegatte, Stephane
author_sort	Rozenberg, Julie
title	Transition to Clean Capital, Irreversible Investment and Stranded Assets
title_short	Transition to Clean Capital, Irreversible Investment and Stranded Assets
title_full	Transition to Clean Capital, Irreversible Investment and Stranded Assets
title_fullStr	Transition to Clean Capital, Irreversible Investment and Stranded Assets
title_full_unstemmed	Transition to Clean Capital, Irreversible Investment and Stranded Assets
title_sort	transition to clean capital, irreversible investment and stranded assets
publisher	World Bank, Washington, DC
publishDate	2014
url	http://documents.worldbank.org/curated/en/2014/05/19457792/transition-clean-capital-irreversible-investment-stranded-assets http://hdl.handle.net/10986/18343
_version_	1764440673524645888

Transition to Clean Capital, Irreversible Investment and Stranded Assets

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