Carbon lock-in: The role of expectations

G.C. van der Meijden, Sjak Smulders

Research output: Contribution to journalArticleScientificpeer-review

6 Citations (Scopus)

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.
Original languageEnglish
Pages (from-to)1371-1415
Number of pages44
JournalInternational Economic Review
Volume58
Issue number4
DOIs
Publication statusPublished - 28 Nov 2017

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