Tsur, Yacov: Optimal Transition to Backstop Substitutes for Nonrenewable Resources
World Conference Econometric Society, 2000, Seattle

Yacov Tsur, Hebrew University of Jerusalem
Amos Zemel, Ben-Gurion University of the Negev
Optimal Transition to Backstop Substitutes for Nonrenewable Resources
Session: C-11-5  Tuesday 15 August 2000  by Tsur, Yacov
We analyze the development of solar-based power generation technologies in light of increased scarcity of fossil fuels and of atmospheric pollution induced by fossil fuel combustion. We consider a continuous technological progress (and a corresponding cost reduction) in solar energy generation as knowledge from R&D activities accumulates. The ensuing energy policy consists of the time profiles of fossil and solar energy supply rates and of the investment in solar R&D. We find that the optimal R&D policy follows a non-standard Most-Rapid-Approach-Path: The accumulated learning from R&D activities should approach a prespecified target process as rapidly as possible and then proceed along this process forever. This result stresses the need for early engagement in solar R&D programs long before solar technologies become competitive. The optimal rate of fossil energy supply decreases over time and vanishes continuously at the date the fossil fuel reserves are depleted while the supply of solar energy increases as it gradually takes over to meet the entire demand.


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