"Opening remarks This book aims to shed light on the future demand for electricity in the light of the challenges posed by climate change. In the UK we have a formal target for the reduction of carbon dioxide equivalent emissions of 80 per cent by 2050 (on 1990 levels). Official publications regularly suggest that reducing overall energy demand is an important part of meeting that target"--
We develop an endogenous growth model to address a long standing question whether sustainable green growth is feasible by re-allocating resource use between green (natural) and man-made (carbon intensive) capital. Although the model is general we relate it to the UKís green growth policy objective. In our model, Önal output is produced with two reproducible inputs, green and man-made capital. The growth of man-made capital causes depreciation of green capital via carbon emissions and related externalities which the private sector does not internalize. A benevolent government uses carbon taxes to encourage Örms to substitute man-made capital with green capital in so far the production technology allows. Doing so, the damage to natural capital by emissions can be partly reversed through a lower socially optimal long run growth. The trade-o§ between environmental quality and long-run growth can be overcome by a pollution abatement technology intervention. However, if the source of pollution is consumption, the optimal carbon tax is zero and there is no trade-o§ between environment policy and growth. A corrective consumption tax is then needed to Önance a public investment programme for replenishing the green capital destroyed by consumption based emissions.
Governments have faced increasing pressure for energy policy to converge around efficiency, sustainability, affordability, and access in recent years. However, separate "silos" rather than an integrated policy framework have addressed these objectives, widening the policy trade-offs. The emergence of market-based reforms and renewable energy technologies has created potential synergies to achieve the objectives. In this paper, we develop a simple analytical framework based on economic efficiency and welfare arguments for the purposeful reallocation of subsidies from fossil fuels to renewable energy. The need to remove poorly targeted fossil fuel subsidies, which generate greater environmental costs, also facilitates this reallocation. Our focus is on utilizing the synergies between market-based reforms and renewables as the electricity sector lies at the confluence of these multiple objectives. We illustrate our framework using experiences from four emerging economies, drawing lessons for policy makers pursuing supply diversification through renewables.
