Firm Heterogeneity, Industry Dynamics, and Climate Policy
We develop a dynamic general equilibrium model to quantify the interaction between climate policy, industry dynamics, and the elasticity of substitution between clean and dirty energy in the economy. The model incorporates empirical observations that firms differ substantially in their potential for energy substitution and that the economy is growing more capable of substituting clean for dirty energy over time as environmental regulation becomes more stringent. Our model highlights the effect of dynamic industry response on increasing the average elasticity of substitution in the economy due to the exit of least flexible firms in response to climate policy. The higher average elasticity of substitution increases the effectiveness of the policy at reducing emissions, resulting in a 35 percent decrease in the size of the carbon tax required to achieve carbon neutrality.
Date:
23 January 2023, 16:05 (Monday, 2nd week, Hilary 2023)
Venue:
Manor Road Building, Manor Road OX1 3UQ
Venue Details:
Skills Lab or https://zoom.us/j/92415955348?pwd=ME5ybjVBVk90aThHdkcwVnZiUWF4Zz09
Speaker:
Ara Jo (University of Bath)
Organising department:
Department of Economics
Part of:
Environment and Resource Economics Seminar
Booking required?:
Not required
Audience:
Members of the University only
Editor:
Emma Heritage
