Vintage capital and the diffusion of clean technologies

Théophile Azomahou (1, 2) , Raouf Boucekkine (3, 4, 5) , Phu Nguyen-Van (6)

1 UNU-MERIT - UNU-MERIT
2 Maastricht University [Maastricht]
3 UCL IRES - Institut de recherches économiques et sociales
4 CORE - Center of Operation Research and Econometrics [Louvain]
5 GREQAM - Groupement de Recherche en Économie Quantitative d'Aix-Marseille
6 BETA - Bureau d'Économie Théorique et Appliquée

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.

Mots clés: Energy-saving technological progress; Vintage capital; Market imperfections; Natural monopoly; Investment

Domaines: Economies et finances

Théophile Azomahou, Raouf Boucekkine, Phu Nguyen-Van. Vintage capital and the diffusion of clean technologies. 2011. ⟨halshs-00599092⟩