Amigues, Jean-Pierre and Moreaux, Michel (2016) Pollution Abatement v.s. Energy Efficiency Improvements. TSE Working Paper, n. 16-626, Toulouse

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Abstract

To prevent climate change, three options are currently considered: improve the energy conversion efficiency of primary energy sources, develop carbon free alternatives to polluting fossil fuels, abate potential emissions before they are released inside the atmosphere. We study the optimal mix and timing of these three mitigation options in a stylized dynamic model. Useful energy can come from two sources: a non-renewable fossil fuel resource and a carbon free renewable resource. The extraction cost of the non-renewable resource is an increasing function of past cumulated extraction. The conversion efficiency rates of crude energy into useful energy are open to choice but higher conversion performances are also more costly to achieve. In addition the economy can choose to abate some fraction of its potential emissions and an higher abatement rate incurs higher costs. The society objective is to maintain below some mandated level, or carbon cap, the atmospheric carbon concentration. In the interesting case where the economy would be actually constrained by the cap, at least temporarily, we show the following. The optimal path is a sequence of four time regimes: a ’pre-ceiling’ regime before the economy is actually constrained by the cap, a ’ceiling’ regime at the cap, a ’post-ceiling’ regime below the cap and a final regime of exclusive exploitation of renewable resources. If the abatement option has ever to be used, it should be around the beginning time of the ceiling regime, first at an increasing rate and next at a decreasing rate. The efficiency performance from any source steadily improves with the exception of a time phase under the ceiling regime when it is constant. Renewables take progressively a larger share of the energy mix but their exploitation may be delayed significantly. Carbon emissions drop down continuously although not sufficiently to prevent carbon accumulation up to the cap during the pre-ceiling regime.