Topics in climate policy, energy efficiency and technological change

Lise-Lotte Pade, Peter Bogetoft (Supervisor)

Research output: Book/ReportPh.D. thesisResearch

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This dissertation addresses the issues of climate policy, energy efficiency and technological change at several levels. It contains four chapters of which two are independent while the other two are related. The contents of the two independent and the two related chapters are not directly linked, however, the overall topics: energy and technology are common to all of them.
The point of departure of Chapter 1 is the natural monopoly situation characterising most of the district heating companies in Denmark. Facing a market structure of independent heating systems and cost-of-service regulation the regulator considers ways to create incentives for increasing efficiency in heat production. One way is to implement benchmark regulation. The aim of Chapter 1 is twofold: (1) to investigate the potential for increasing productivity in Danish district heating production and (2) to examine whether benchmarking has a role to play. Using Data Envelopment Analysis (DEA) showed a potential to reduce production costs by 5-27 % depending on the portfolio of inputs and outputs included in the model. Combining DEA and regression analyses Chapter 1 gives useful insight into what a policy-maker should be aware of dependent on the goal of the regulation: whether short-term economic efficiency is the goal or whether solving long-term environmental problems is the target. The main objective of Chapter 2 is to determine the reasons for the differences in CO2 emissions between Denmark, Sweden and Germany. I apply input-output based structural decomposition analysis and decompose the effects on CO2 emissions of energy mix, energy intensity, input mix and final demand. That analysis is useful for determining in which areas the countries differ with respect to energy intensity and industrial structure, but also whether changes in the energy composition could benefit the CO2 emissions of the country. I find that Sweden and Germany could improve their energy efficiency compared to Denmark whereas Denmark and Germany could reduce their CO2 emissions by changing the composition of energy.
Chapter 3 challenges existing literature on the field of climate policy and induced technological change (ITC). Other studies tend to find that the presence of ITC implies a lower carbon emission tax rate and less abatement in the near future than without induced technological change. Since scientific advances will make carbon abatement less costly in the more distance future, society will benefit from waiting to set a tough climate policy. Contrary to this we find that governments should set a high carbon tax today in order to speed up innovation of new carbon abatement technology. We adapt Romer’s endogenous growth model to the issue of carbon abatement and energy production. The more research, the more carbon abatement is carried out, and the lower the cost of a given policy. However, since the number of ideas is external both to the abatement equipment firms and the energy sector, climate policy should be tough in order to internalize this positive externality. Finally, Chapter 4 takes us one step further by introducing the surrounding world. By extending the partial equilibrium model developed in Chapter 3 I shed light on the optimal timing of the climate policy of a small open country dependent on the technological level and the technological development of the surrounding world. I find that the technological development in the surrounding world is less important to the optimal carbon tax in the small open country compared to the initial technological level in the surrounding world. If the initial technological level in the surrounding world is high the small open country should set the carbon tax high when the emission restrictions come into force. However, if the initial technological level in the surrounding world is low the small open country should set the carbon tax high from the very beginning in order to assure a sufficiently high technological level itself when emission restrictions come into force.
Original languageEnglish
PublisherThe Royal Veterinary and Agricultural University
Number of pages145
Publication statusPublished - 2006
Externally publishedYes


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