How clean capital slows down disinvestment of carbon-intensive capital in the low-carbon transition

Wei Jin*, Frederick van der Ploeg, Lin Zhang

*Corresponding author for this work

Research output: Journal Publications and ReviewsRGC 21 - Publication in refereed journalpeer-review

3 Citations (Scopus)

Abstract

This paper explores a novel mechanism through which transitions to a low-carbon economy can proceed smoothly without excessive disinvestment in carbon-intensive capital. The mechanism is analyzed in a Lucas-Uzawa green growth model with carbon-temperature dynamics. Due to the externalities associated with climate damages and learning by doing, insufficient resources are allocated towards investment in clean capital in the business-as-usual market economy. Without green subsidies to stimulate clean capital investment, pricing emissions to internalize the social cost of carbon causes disinvestment in carbon-intensive capital and increases the costs of low-carbon transitions. Pricing emissions and subsidizing clean investment yield a higher return on clean capital and boost clean capital accumulation. This curbs disinvestment in carbon-intensive capital and limits carbon emissions. This highlights the positive role of clean capital for smoothing low-carbon transitions. © 2024 Elsevier B.V.
Original languageEnglish
Article number104857
JournalJournal of Economic Dynamics and Control
Volume162
Online published4 Apr 2024
DOIs
Publication statusPublished - May 2024

Funding

Wei Jin gratefully acknowledges the financial support from the National Social Science Fund of China (Grant No. 21BJL036). Lin Zhang acknowledges the financial support from the Research Grants Council of Hong Kong (11503223 and N_CityU146/23) and City University of Hong Kong (7020099).

Research Keywords

  • Green growth
  • Low-carbon transition
  • Carbon pricing
  • Learning-by-doing
  • Lucas-Uzawa growth model

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