November 28, 2010

Uncertain Long-Run Emissions Targets, CO2 Price and Global Energy Transition: a General Equilibrium Approach

by Olivier Durand-Lasserve, Axel Pierreu and Yves Smeers

- The persistent uncertainty about mid-century CO2 emissions targets is likely to affect not only the technological choices that energy-producing firms will make in the future but also their current investment decisions. We illustrate this effect on CO2 price and global energy transition within a MERGE-type general-equilibrium model framework, by considering simple stochastic CO2 policy scenarios. In these scenarios, economic agents know that credible long-run CO2 emissions targets will be set in 2020, with two possible outcomes: either a "hard cap" or a "soft cap".

Durand-Lasserve, O., A. Pierreu and Y. Smeers (2010). "Uncertain Long-Run Emissions Targets, CO2 Price and Global Energy Transition: a General Equilibrium Approach." CORE Discussion Paper No 2010.27, Jun 2010.