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Scrapping, Renewable Technology Adoption, and Growth

Ted Temzelides
Borghan Narajabad
Publication Year 
JEL Code 
H21 - Efficiency; Optimal Taxation
O14 - Industrialization; Manufacturing and Service Industries; Choice of Technology
O33 - Technological Change: Choices and Consequences; Diffusion Processes
Q54 - Climate; Natural Disasters
Q55 - Technological Innovation
We develop a dynamic general equilibrium integrated assessment model that incorporates scrapping costs due to new technology adoption in renewable energy as well as externalities associated with carbon emissions and renewable technology spillovers. We use world economy data to calibrate our model and investigate the effects of the scrapping channel on renewable energy adoption and on the optimal energy transition. Our calibrated model implies several interesting connections between scrapping costs, the two externalities, policy, and welfare. We investigate the relative effectiveness of two policy instruments-Pigouvian carbon taxes and policies that internalize spillover effects-in isolation as well as in tandem. Our findings suggest that scrapping costs are of quantitative importance for technology adoption and the energy transition. The two policy instruments are better thought of as complements rather than substitutes.
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