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Energy Efficiency and Directed Technical Change: Implications for Climate Change Mitigation

Gregory Casey ()

No 2019-17, Department of Economics Working Papers from Department of Economics, Williams College

Abstract: I build a quantitative model of economic growth that can be used to evaluate the impact of environmental policy interventions on final-use energy consumption, an important driver of carbon emissions. In the model, energy demand is driven by endogenous and directed technical change (DTC). Energy supply is subject to increasing extraction costs. Unlike existing DTC models, I consider the case where multiple technological characteristics are embodied in each capital good, a formulation conducive to studying final-use energy. The model is consistent with aggregate evidence on energy use, efficiency, and prices in the United States. I examine the impact of new energy taxes and compare the results to the standard Cobb-Douglas approach used in the environmental macroeconomics literature, which is not consistent with data. When examining a realistic and identical path of energy taxes in both models, the DTC model predicts 22% greater cumulative energy use over the next century. I also use the model to study the macroeconomic consequences of R & D subsidies for new energy efficient technologies. I find large rebound effects that undo short-term reductions in energy use.

Keywords: Energy; Climate Change; Directed Technical Change; Growth (search for similar items in EconPapers)
JEL-codes: H23 O33 O44 Q43 Q55 (search for similar items in EconPapers)
Pages: 69 pages
Date: 2019-09
New Economics Papers: this item is included in nep-agr, nep-eff, nep-ene, nep-env and nep-gro
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Working Paper: Energy Efficiency and Directed Technical Change: Implications for Climate Change Mitigation (2017) Downloads
Working Paper: Energy Efficiency and Directed Technical Change: Implications for Climate Change Mitigation Downloads
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