1. Introduction ................................................ 1
1.1. Motivation and Research Question ...................... 1
1.2. Analytical Approach ................................... 2
1.3. Main Contribution ..................................... 3
1.4. Outline ............................................... 5
Part I Theoretical Analysis
2. Foundations of the Theoretical Analysis ..................... 9
2.1. Social versus Private Time Preferences ................ 9
2.1.1. The Economic Discounting Debate: First-best
Benchmark, Second-best Cases, and Some More
Recent Issues ................................ 10
2.1.2. Three Reasons Particularly Relevant for
the Present Analysis ......................... 16
2.1.3. Summary and Treatment of the Assumption in
the Model .................................... 27
2.2. Time-Lagged Capital Theory ........................... 29
2.2.1. Its Evolution and the Basic Neo-Austrian
Three-process Model .......................... 30
2.2.2. New Extensions ............................... 32
2.3. Analytical Structure of the Model in Chapter 3 ....... 32
2.4. Conclusion ........................................... 33
3. A Theoretical Model of Structural Change in the
Energy Industry ............................................ 35
3.1. Model ................................................ 35
3.2. Social Optimum ....................................... 38
3.2.1. Necessary and Sufficient Conditions
for Social Optimum ........................... 38
3.2.2. Conditions for Investment and Replacement .... 41
3.3. Unregulated Competitive Market Equilibrium ........... 45
3.3.1. The Household's Market Decisions ............. 45
3.3.2. The Firms' Market Decisions .................. 46
3.3.3. Necessary and Sufficient Condition for
Unregulated Market Equilibrium ............... 47
3.3.4. Conditions for Investment and Replacement .... 48
3.4. Competitive Market Equilibrium with Emission Tax
and Investment Subsidy ............................... 51
3.4.1. The Household's and Firms' Market Decisions
under Regulation ............................. 51
3.4.2. Necessary and Sufficient Condition for
Regulated Market Equilibrium ................. 52
3.4.3. Conditions for Investment and Replacement .... 54
3.5. Conclusion ........................................... 58
4. Summary of Results, Discussion of Assumptions,
and Policy Implications .................................... 59
4.1. Summary of Results ................................... 59
4.1.1. Too Low Unit Costs of Energy of Established
Technology as Compared to Social Optimum
Due to Pollution ............................. 59
4.1.2. Too High Unit Costs of Energy of New
Technology as Compared to Social Optimum
Because Private Time-Preference Rate
Higher Than Socially Optimal ................. 60
4.1.3. Time Lag of Capital Accumulation Reinforces
Distortion from Split of Social and Private
Time-Preference Rates ........................ 61
4.1.4. Distortions Imply in Mutually Reinforcing
Way Less Favorable Circumstances for
Innovation and Replacement ................... 61
4.1.5. Social Optimum May Be Implemented by
Setting Appropriate Emission Tax and
Investment Subsidy ........................... 62
4.1.6. Environmental Policy Alone Biased Towards
Gradual Change, Technology Policy Alone
Independant of Environmental Effect .......... 62
4.2. Discussion of Model Assumptions ...................... 63
4.2.1. Social Rate of Time Preference Below
Private ...................................... 63
4.2.2. Time Lag in Capital Accumulation ............. 63
4.2.3. Focus on Linear-limitational, General
Energy Technologies .......................... 64
4.2.4. Labor Only Primary Input, Energy
Homogeneous Output ........................... 64
4.2.5. Emissions as Flow Pollutant .................. 65
4.2.6. Abstraction from Peculiarities of Economics
of Power Systems ............................. 65
4.3. Policy Implications .................................. 65
4.3.1. New Reason for Technology Policy ............. 66
4.3.2. No Support of Subsidies for Specific
Technologies ................................. 66
4.3.3. Necessary Completion of Environmental
by Technology Policy ......................... 66
4.3.4. Environmental Policy Alone Favors Gradual
Change ....................................... 67
4.3.5. Substantiation of Win-win Hypothesis of
Environmental Regulation ..................... 67
4.4. Conclusions to Theoretical Part ...................... 67
Part II. Applied Analysis
5. Foundations of the Applied Analysis ........................ 71
5.1. Analytical Setting and Specifics of the Applied
Investigation ........................................ 71
5.1.1. Analytical Setting ........................... 72
5.1.2. Focus on Germany Around 2015 and
Conventional Generation Technologies ......... 73
5.1.3. Previous Literature, Contribution, and Data
Sources ...................................... 74
5.1.4. Relationship to Theoretical Part ............. 77
5.2. Financial Model ...................................... 78
5.2.1. Capital Costs ................................ 78
5.2.2. Costs During Operation ....................... 80
5.2.3. Unit Costs of Electricity of the New
Technologies ................................. 81
5.2.4. Unit Costs of Electricity of the
Established Technology ....................... 82
5.3. Technical and Economic Parameters .................... 83
5.3.1. Old and New Coal-fired Reference Power
Plants ....................................... 83
5.3.2. Gas-fired Reference Power Plant .............. 88
5.3.3. Nuclear Reference Power Plant ................ 91
5.4. Policy Parameters .................................... 96
5.4.1. Environmental Policy ......................... 96
5.4.2. Technology Policy ............................ 97
5.5. Conclusion ........................................... 99
6. Technology Choice Under Environmental and Technology
Policies .................................................. 101
6.1. No-policy Benchmark ................................. 101
6.2. Technology Choice Without Abatement Technology ...... 102
6.2.1. Sensitivity Under Environmental Policy ...... 102
6.2.2. Sensitivity Under Technology Policy ......... 104
6.2.3. Sensitivity Under Environmental and
Technology Policies Combined ................ 107
6.3. Technology Choice With Abatement Technology ......... 109
6.3.1. Sensitivity Under Environmental Policy ...... 109
6.3.2. Sensitivity Under Environmental and
Technology Policies Combined ................ 110
6.4. Summary and Discussion of Results ................... 112
6.4.1. No-policy Benchmark ......................... 112
6.4.2. Results Under Environmental Policy
Without and With Abatement Option ........... 113
6.4.3. Results in Cases with Technology Policy ..... 114
6.4.4. Results According to Nl and Nh Scenarios .... 115
6.5. Conclusion .......................................... 116
7. Optimal Moments of Transition Under Environmental and
Technology Policies ....................................... 119
7.1. Determination of the Optimal Moment of Transition ... 119
7.2. No-policy Benchmark ................................. 121
7.3. Optimal Moments of Transition Without Abatement
Technology .......................................... 122
7.3.1. Sensitivity Under Environmental Policy ...... 122
7.3.2. Sensitivity Under Technology Policy ......... 124
7.3.3. Sensitivity Under Environmental and
Technology Policies Combined ................ 126
7.4. Optimal Moments of Transition With Abatement
Technology .......................................... 129
7.4.1. Sensitivity Under Environmental Policy ...... 129
7.4.2. Sensitivity Under Environmental and
Technology Policies Combined ................ 131
7.5. Summary and Discussion of Results ................... 133
7.5.1. No-policy Benchmark ......................... 133
7.5.2. Results Under Environmental Policy
Without and With Abatement Option ........... 133
7.5.3. Results in Cases with Technology Policy ..... 135
7.5.4. Results According to Nl and Nh Scenarios .... 137
7.6. Conclusion .......................................... 138
8. Conclusions ............................................... 141
8.1. Putting the Analysis in Perspective ................. 141
8.2. Policy Conclusions .................................. 143
8.3. Issues for Further Research ......................... 144
A. Appendix to Part I ....................................... 147
A.l. Concavity of Hamiltonian Along Optimal Path .............. 147
A.2. Optimal Transition Dynamics and Stationary States ........ 148
A.3. Saddle-Point Stability of Interior Solution .............. 149
B. Appendix to Part II ...................................... 155
B.1. Summary of Technical, Financing, and Cost Parameters ..... 155
References .................................................... 157
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