Adjustment time, capital malleability, and policy cost
by Jacoby,H.D. and I. Sue Wing
Energy Journal Special Issue: The Costs of the Kyoto Protocol: A Multi-Model Evaluation, pp. 73-92, 1999
The cost of meeting Kyoto-style emissions reductions is heavily dependent on the malleability of an economy's stock of capital and the number of years available for adjustment. Each year of delay introduces more emission-producing activities that must be squeezed out of the system and shortens the time horizon for change, raising the carbon price required to produce the needed changes in capital structure. The MIT Emissions Prediction and Policy Assessment model is used to explore the effects of uncertainty in the degree of capital malleability in the short run, and to analyze how implied carbon prices vary depending on the time of credible commitment to emissions targets.
© 1999 International Association for Energy Economics
Link to full document (1361 kB PDF)