Some Macroeconomic Evidence on Substitution

Gregory Casey, Yang Gao and Peter K. Kruse-Andersen

AEA Papers and Proceedings, 2026, vol. 116, 522-526

Abstract: We investigate the aggregate elasticity of substitution between clean and dirty energy using time-series data from the United States. To match the data, a standard macro climate-economy model requires an elasticity that is close to one in the long run but well below one in the short run. Impulse response functions show that the elasticity converges slowly to its long-run value after a shock to dirty energy prices. Our findings suggest that carbon taxes reduce emissions more slowly than standard models predict.

JEL-codes: H23 Q35 Q41 Q42 Q54 Q58 (search for similar items in EconPapers)
Date: 2026
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DOI: 10.1257/pandp.20261027

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