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Distorted Time Preferences and Time-to-Build in the Transition to a Low-Carbon Energy Industry

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Abstract

We study the welfare-theoretic consequences of diverging social and private time-preference rates and time-to-build for the transition to a low-carbon energy industry. We show that time-to-build, a prevalent characteristic of capital accumulation in the energy sector, amplifies the distortion induced by the split discount rates. Thus, these two characteristics create in a mutually reinforcing way less favorable circumstances for the introduction of new clean energy technologies as compared to the social optimum, even if welfare losses from emissions are internalized. We discuss resulting policy implications with particular emphasis on the energy sector.

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Authors and Affiliations

  1. Toulouse School of Economics (LERNA), 21 Allée de Brienne, 31000, Toulouse, France

    Christoph Heinzel

  2. Department of Economics and Oeschger Centre for Climate Change Research, University of Bern, Schanzeneckstrasse 1, 3001, Bern, Switzerland

    Ralph Winkler

Authors
  1. Christoph Heinzel
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  2. Ralph Winkler
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Correspondence to Ralph Winkler.

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We are grateful for valuable comments to Stefan Baumgärtner, Johannes Becker, Lucas Bretschger, Timothy Cogley, Hippolyte d’Albis, Marco Lehmann-Waffenschmidt, Normann Lorenz, Till Requate, Maik Schneider, Marcel Thum and Christian Traeger, to participants of the 2007 conferences of EAERE, EEA and Verein für Socialpolitik, of the AFSE Thematic Meeting (Toulouse) and the 3rd Atlantic Workshop on Energy and Environmental Economics (A Toxa), and of seminars in Dresden, Heidelberg and Zürich The usual disclaimer applies.

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Heinzel, C., Winkler, R. Distorted Time Preferences and Time-to-Build in the Transition to a Low-Carbon Energy Industry. Environ Resource Econ 49, 217–241 (2011). https://doi.org/10.1007/s10640-010-9431-0

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