Public policies and incentives to accelerate irreversible green investments. Climate-change mitigation and European land-use policies., 89-101.
The value of postponing abatement measures involving sunk costs (irreversible green investments) is explored. The analysis is carried out with reference to a single firm facing the decision of whether or not to switch from a polluting technology to a green one. The optimal private timing of technological change without public intervention is examined, when the investment timing simply reflects the innovation’s private benefits, without taking into account the technological switch’s social benefits. Public intervention is then introduced, based on the need to internalize within private decisions the social cost deriving from the firms’ continued use of a polluting technology. Two alternative policy scenarios, reflecting different public authority perceptions of this social cost, are considered.