Energy Saving Technological Progress and Sustainable Development - Programme
The move towards cleaner technologies has become one of the most important policy debates in recent years. International agreements like the Kyoto Protocol have certainly influenced such a trend, along with the rising discussion on the broader concept of sustainable development. Among possible policy tools to favour the switch to cleaner technologies (i.e. with lower polluting emissions), one can distinguish between quotas and pollution permits and fiscal policies. Fiscal policies include emission taxes designed to limit the use of dirty technologies, investment subsidies in new and cleaner technologies, and scrapping subsidies which favour the dismantlement of the oldest and most polluting techniques. This paper is concerned with fiscal policies designed to promote the switch to clean technologies. Indeed, a major component of the ongoing debate is about how to save energy consumption, given that the latter is one of the most important sources of pollution.
This research aims to investigate the effectiveness of the fiscal instruments to effectively favour investment in the new and cleaner technologies, and to investigate their impact on the GDP. Under a given pace for energy-saving technical progress, do investment (in new capital goods) subsidies and/or scrapping subsidies have ultimately a positive impact on investment and output? This question is far from obvious in a general equilibrium framework where energy suppliers may also react to such policies. This research will highlight the crucial role of market structures in this respect, in particular the energy market which has received much less attention in the related macroeconomic literature.
To this end, we consider two polar market structures: free entry and natural monopoly. These two cases are not only interesting for tractability but also to partially assess the recent restructuring and regulatory reforms that have targeted the energy sector, particularly electricity, in the USA and Europe towards more competition in energy markets to achieve a higher energy efficiency. Natural monopoly is a plausible assumption as energy markets generates enormous fixed costs and economies of scale. Water, electricity, and natural gas utilities are typically cited as examples of natural monopolies. Recent deregulation policies observed in several countries (e.g. Argentina, England, New Zealand, Europe, the United States and Japan) has aimed to encourage a competitive energy generation sector, energy transmission and distribution remaining close to a regulated monopoly situation.
Two avenues will be investigated:
- a general equilibrium model with explicit modeling of the energy sector
- a general equilibrium model with exogenous energy prices and nonlinear vintage production functions. Empirical investigations will support the theoretical framework: the estimation of (i) firms' behaviour with regard to equipment replacement; (ii) returns of scale of R&D, notably those of energy-saving technology, and (iii) the complementarity between R&D in the fossil energy sub-sector and resource conservation strategy. Simulation scenarii of technological and environmental policies (R&D subvention, temporary/permanent shocks on energy prices) and their effects on welfare will be studied.