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Estimating Path Dependence in Energy Transitions

Kyle Meng

No 1539, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: How can an economy transition from dirty to clean inputs? When transitional dynamics exhibit strong path dependence, a temporary shock to input composition can trigger permanent structural change. This paper examines whether such dynamics characterize the U.S. energy sector’s use of coal - the most climate-damaging energy input - over the 20th century. Exploiting local coal transport distance shocks driven by the changing regional accessibility of subsurface coal resources, I find increasing imbalance in the coal composition of electricity capital lasting ten decades following a shock. Additional tests detect increasing returns to scale as the underlying mechanism. To inform energy transitions more broadly, I develop a model of scale-driven structural change to map reduced-form estimates onto a key parameter found across a class of structural change models. Calibrated model simulations further characterize conditions under which a temporary climate policy can trigger a permanent future transition towards clean energy.

Date: 2019
New Economics Papers: this item is included in nep-ene, nep-his and nep-reg
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Working Paper: Estimating Path Dependence in Energy Transitions (2016) Downloads
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