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The economics of targeted mitigation in infrastructure

Author

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  • Franck Lecocq
  • Zmarak Shalizi
Abstract
Once established, long-lived capital stock (LLKS) such as infrastructure can lock-in a stream of GHG emissions for extended periods of time. Historical examples from industrial countries suggest that investments in LLKS projects and networks are often lumpy and concentrated in time, and often generate significant indirect and induced emissions besides direct emissions. Urbanization and rapid economic growth suggest that similar investments in LLKS projects and networks are being or will soon be made in many developing countries. In their current form, carbon markets do not provide correct incentives for mitigation in LLKS because the constraint on emissions is limited to developed countries and extends only to 2012. Targeted mitigation programmes are thus necessary where LLKS is being built at a rapid rate to avoid getting locked into highly emissions-intensive LLKS. Even if carbon markets were extended geographically, sectorally, and over time, public intervention would still be required to ensure that indirect and induced emissions are accounted for, to facilitate LLKS project/network financing that bridges the gap between carbon revenues accruing over time and capital needed up front to finance lumpy investments, and to internalize other externalities (e.g. local pollution) and/or lift other barriers that penalize low-emissions alternatives relative to high-emissions ones. Policy relevance LLKS is rapidly being built in developing countries and 'renewed'/upgraded in developed ones. Investment in LLKS programmes/networks, not just in individual projects, tends to be concentrated in time, two-thirds of which typically takes place in the first quarter of the programme's operating life. Initial/prototype projects can lock in commitment to a particular technology for the whole programme, thus requiring they be evaluated as part of a programme, and not on a stand-alone basis. In addition, indirect and induced emissions of LLKS programmes can be significant. However, scarce empirical evidence affects the utility of cost-benefit analysis in selecting projects or programmes. Finally, addressing the carbon externality alone (whether by market prices, taxes, or regulations) is insufficient to create a level playing field between low- and high-emission LLKS. Removing non-price barriers requires identification of binding constraints, selection of instruments to address them, and mechanisms to learn from and share experiences amongst countries and regions.

Suggested Citation

  • Franck Lecocq & Zmarak Shalizi, 2014. "The economics of targeted mitigation in infrastructure," Climate Policy, Taylor & Francis Journals, vol. 14(2), pages 187-208, March.
    • Handle: RePEc:taf:tcpoxx:v:14:y:2014:i:2:p:187-208
    DOI: 10.1080/14693062.2014.861657
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    Citations

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    Cited by:

    1. Framstad, Nils Chr. & Strand, Jon, 2015. "Energy intensive infrastructure investments with retrofits in continuous time: Effects of uncertainty on energy use and carbon emissions," Resource and Energy Economics, Elsevier, vol. 41(C), pages 1-18.
    2. Lennox, James A. & Witajewski-Baltvilks, Jan, 2017. "Directed technical change with capital-embodied technologies: Implications for climate policy," Energy Economics, Elsevier, vol. 67(C), pages 400-409.
    3. Jean Charles Hourcade & Michel Aglietta & Baptiste Perrissin-Fabert, 2014. "Transition to a Low-Carbon society and sustainable economic recovery, a monetary-based financial device," Post-Print hal-01692593, HAL.
    4. Pegels, Anna & Lütkenhorst, Wilfried, 2014. "Is Germany׳s energy transition a case of successful green industrial policy? Contrasting wind and solar PV," Energy Policy, Elsevier, vol. 74(C), pages 522-534.
    5. Punam Chuhan-Pole & Cesar Calderon & Gerard Kambou & Sebastien Boreux & Mapi M. Buitano & Vijdan Korman & Megumi Kubota & Rafael M. Lopez-Monti, "undated". "Africa's Pulse, No.13, April 2016," World Bank Publications - Reports 24033, The World Bank Group.
    6. Kemp-Benedict, Eric, 2014. "Shifting to a Green Economy: Lock-in, Path Dependence, and Policy Options," MPRA Paper 60175, University Library of Munich, Germany.
    7. Vogt-Schilb, Adrien & Meunier, Guy & Hallegatte, Stéphane, 2018. "When starting with the most expensive option makes sense: Optimal timing, cost and sectoral allocation of abatement investment," Journal of Environmental Economics and Management, Elsevier, vol. 88(C), pages 210-233.
    8. Rode, Philipp & Floater, Graham & Thomopoulos, Nikolas & Docherty, James & Schwinger, Peter & Mahendra, Anjali & Fang, Wanli, 2014. "Accessibility in cities: transport and urban form," LSE Research Online Documents on Economics 60477, London School of Economics and Political Science, LSE Library.
    9. Pfeiffer, Alexander & Millar, Richard & Hepburn, Cameron & Beinhocker, Eric, 2016. "The ‘2°C capital stock’ for electricity generation: Committed cumulative carbon emissions from the electricity generation sector and the transition to a green economy," Applied Energy, Elsevier, vol. 179(C), pages 1395-1408.
    10. Avner, Paolo & Rentschler, Jun & Hallegatte, Stephane, 2014. "Carbon price efficiency : lock-in and path dependence in urban forms and transport infrastructure," Policy Research Working Paper Series 6941, The World Bank.
    11. David Martimort & Stéphane Straub, 2011. "How to Design Public-Private Partnerships in a Warming World? - When Infrastructure Becomes a Really “Hot” Topic," Working Papers 2011/25, Maastricht School of Management.
    12. Strand, Jon & Miller, Sebastian & Siddiqui, Sauleh, 2014. "Long-run carbon emission implications of energy-intensive infrastructure investments with a retrofit option," Energy Economics, Elsevier, vol. 46(C), pages 308-317.
    13. Kemp-Benedict, Eric, 2014. "A Kaleckian Model with Intermediate Goods," MPRA Paper 57076, University Library of Munich, Germany.

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