Capital vintage and climate change policies: the case of US pulp and paper

The climate change policy debate and ensuing discussions about industrial energy use and carbon emissions have highlighted the need to: (a) aggregate engineering information to a level relevant for economic policy analysis while maintaining sufficient detail so that results are meaningful for industry decision makers, (b) properly represent an industry's capital vintage structure to better understand inertia associated with changes in aggregate industrial emissions profiles, and (c) identify policy instruments that leverage an industry's potential for technological change such that carbon emissions can be noticeably reduced. This paper presents an econometric analysis of energy use and emissions profiles of the US Pulp and Paper Industry and uses the resulting set of equations to specify a dynamic model for the analysis of select climate change policies. Scenarios of cost of carbon, energy tax, and investment-led policies indicate that a combination of cost of carbon and investment-led policies can achieve the desired result of rapidly improving overall efficiency of the industry and promoting changes in fuel mix, which together can result in drastic reductions of carbon emissions. (C) 2004 Elsevier Ltd. All rights reserved.