The Rise and Fall of Bioenergy

If bioenergy has a less negative impact on the climate than fossil energy, it may be optimal to have a significant increase in the use of bioenergy over time. Due to the difference in the way the climate is affected by the two types of energy, the future time path of the use of bioenergy may be non-monotonic: It may be optimal to first have an increase in its use, and later a reduction. Optimal taxes and subsidies are derived both for the first-best case and for the case of a constraint on the size of the fossil tax.