Estimating Path Dependence in Energy Transitions

Kyle Meng

No 22536, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: What induces energy transitions away from dirty fuels? When transitional dynamics exhibit strong path dependence, a temporary shock to fuel composition can trigger a permanent transition from dirty to clean fuels. I empirically examine whether such dynamics characterize the U.S. electricity sector's use of coal - the most climate-damaging fuel - across the 20th century. Exploiting local coal supply shocks driven by changing regional accessibility of subsurface coal, I find that a negative shock triggers a declining trajectory in the relative use of coal for electricity lasting for up to ten decades. Interpreted through a structural change model, reduced-form estimates imply a long-run elasticity of substitution between coal and other fuels of 3.5, a pivotal but largely unknown parameter found across recent models of optimal climate policy. Calibrated model simulations further characterize how climate policies of varying magnitudes and durations could trigger a permanent future energy transition away from coal.

JEL-codes: N51 N52 O41 Q35 Q43 Q54 Q58 (search for similar items in EconPapers)
Date: 2016-08
New Economics Papers: this item is included in nep-cmp, nep-ene and nep-env
Note: DAE EEE EFG PE
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Citations: View citations in EconPapers (9)

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Working Paper: Estimating Path Dependence in Energy Transitions (2019)
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