Vintage capital and the diffusion of clean technologies
We are thankful to the editor and an anonymous referee for their helpful comments. Financial support from the project ANR CEDEPTE n°ANR-05-JCJC-0134-01 is gratefully acknowledged. Boucekkine also acknowledges support from the ARC project 09/14-018 on sustainability. We are thankful to Hippolyte d’Albis, Nicolas Boccard, Cecilia Garcia-Penalosa, Cuong Le Van, Fabio Mariani, Paul Pezanis-Christou, Thi Kim Cuong Pham, Aude Pommeret, Luis Puch, Régis Renault, Yves Smeers, Bertrand Wigniolle and participants in seminars and conferences held at Strasbourg, Girona and Galway (APET meetings) for useful comments. The usual caveat applies.
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Abstract
We develop a general equilibrium vintage capital model with energy-saving technological progress and an explicit energy sector to study the impact of investment subsidies on equilibrium investment and output. Energy and capital are assumed to be complementary in the production process. New machines are less energy-consuming and scrapping is endogenous. Two polar market structures are considered for the energy market: free entry and natural monopoly. First, it is shown that investment subsidies may induce a larger equilibrium investment into cleaner technologies either under free entry or natural monopoly. However, in the latter case, this happens if and only if the average cost is decreasing fast enough. Second, larger diffusion rates do not necessarily mean lower energy consumption at equilibrium, which may explain certain empirical observations.
