Decreasing substitutability between clean and dirty energy

Anthony Wiskich

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: A review of the literature indicates a decreasing long-run elasticity of substitution between clean and dirty inputs as the share of clean inputs rises. In the power sector, which is the largest contributor to greenhouse gas emissions, integrating intermittent clean energy supply becomes increasingly difficult as the clean share rises. This paper describes a simple structural model of electricity generation which: demonstrates how the elasticity falls as the clean share rises; can replicate the range of results from the electricity literature; considers the effects of storage, and; facilitates estimation of a suitable production function. A bimodal production function with two elasticity regimes - an elasticity above 8 up to a 50 to 70 per cent clean share and an elasticity below 3 beyond this share – can replicate results well from the structural model.

Keywords: Elasticity of substitution; climate change; energy; electricity; production function (search for similar items in EconPapers)
JEL-codes: O33 Q40 Q41 Q42 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2019-09
New Economics Papers: this item is included in nep-eff, nep-ene, nep-env and nep-reg
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2019-72

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