Technology and Energy Substitution: A Path toward Climate Change Mitigation*

Nida Cakir Melek and Musa Orak

No RWP 23-15, Research Working Paper from Federal Reserve Bank of Kansas City

Abstract: Mitigating climate change is critically linked to reducing an economy’s reliance on fossil energy. This paper examines U.S. energy dependence, measured by its factor share, using a neoclassical framework systematically. We present the degree of substitution between different factors of production as a simple, explicit mechanism for climate change mitigation and for interpreting energy-saving technical change. With time varying capital equipment-energy substitutability, changes in observed factor quantities alone can account for most of the variations in the income share of energy over 1963-2019. Advancing capital equipment access and quality and integrating the dynamic substitutability between energy and equipment into the design of climate policies can help economies achieve environmental goals.

Keywords: elasticity of substitution; energy; climate change; technological change; Capital-skill complementarity (search for similar items in EconPapers)
JEL-codes: E13 E23 E25 J24 Q41 Q42 Q54 Q55 (search for similar items in EconPapers)
Pages: 45
Date: 2023-12-01, Revised 2024-08-02
New Economics Papers: this item is included in nep-ene and nep-env
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedkrw:97654

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DOI: 10.18651/RWP2023-15

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