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Renewable Technology Adoption and the Macroeconomy

Ted Temzelides, Borghan Nezami Narajabad and Bernardino Adao
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Ted Temzelides: Rice University
Bernardino Adao: Banco de Portugal

No 6, 2016 Meeting Papers from Society for Economic Dynamics

Abstract: We study the adaptation of new technologies by renewable energy-producing firms in a dynamic general equilibrium model where energy is an input in the production of goods. Energy can come from fossil or renewable sources. Both require the use of capital, which is also needed in the production of final goods. Renewable energy firms can invest in improving the productivity of their capital stock. The actual improvement is subject to spillovers and comes at the cost of some renewable energy output. Together with spill-overs, this leads to under-investment in improving the productivity of renewable energy capital. In the presence of environmental externalities, the optimal allocation can be implemented through a Pigouvian tax on fossil fuel, together with a policy which promotes adaptation of new renewable technologies. We study numerical examples using world-economy data.

Date: 2016
New Economics Papers: this item is included in nep-agr, nep-dge, nep-eff, nep-ene, nep-env and nep-reg
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Working Paper: Renewable Technology Adoption and the Macroeconomy (2017) Downloads
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