Optimal timing of an energy saving technology adoption

Abstract

In this thesis, we use two stage optimal control techniques to analyze the optimal timing of energy saving technology adoptions. We assume that the physical capital goods sector is relatively more energy intensive than consumption goods sector. First, we solve a benchmark problem without exogenously growing energy saving technology frontier. In such a case, the economy sticks either to the initial technology or immediately switches to a new technology, depending on the growth rate advantage compared to the obsolescence and adjustment costs. In the second step, we introduce exogenously growing energy saving technology frontier. The anticipated level of the technology provides incentives to delay the adoption and generates an interior switching time. Finally, we analyze numerically the e§ects of the speed of adjustment to the new technology, growth rate of technology, subjective time preference and planning horizon on the optimal timing of technology adoption.