Innovation-Led Transitions in Energy Supply
No 23420, NBER Working Papers from National Bureau of Economic Research, Inc
I generalize a benchmark model of directed technical change in order to reconcile it with the historical experience of energy transitions. I show that the economy becomes increasingly locked-in to the dominant energy source when machines and energy resources are substitutes, but a transition away from the dominant energy source is possible when machines and energy resources are complements. Consistent with history, a transition in research activity leads any transition in resource supply. A calibrated numerical implementation shows that innovation is critical to climate change policy. A policymaker uses a temporary research subsidy to permanently redirect innovation towards low-emission resources, avoiding much more warming than would a policymaker restricted to an emission tax instrument.
JEL-codes: N70 O33 O38 O44 Q43 Q54 Q55 Q58 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-agr, nep-ene, nep-env, nep-his, nep-ino and nep-reg
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