Abstract:This paper proposes and analyzes a stationary equilibrium model for a competitive industry which endogenously determines the carbon price necessary to achieve a given emission target.In the model, firms are identified by their level of technology and make production, entry, and abatement decisions. Polluting firms are subject to a carbon price and abatement is formulated as an irreversible investment, which entails a sunk cost and results in the firms switching to a carbon neutral technology. In equilibrium, w… Show more
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