Transition from Fossil Fuels to Renewable Energy: Evidence from a Dynamic Simulation Model with Endogenous Resource Substitution

39 Pages Posted: 20 Feb 2000

Abstract

This paper applies an economic model of climate change that is based on endogenous substitution of energy resources to determine the effect of advances in renewable technology on aggregate and sectoral fossil fuel use and energy prices. It uses a Nordhaus type partial equilibrium model of the energy sector with four demand sectors - electricity, transportation, residential and industrial energy and three of the commercially most important exhaustible resources - oil, coal and natural gas. The findings suggest that among the major commercial fuels, oil and natural gas use are not very sensitive to changes in the cost of solar energy, while coal use is expected to reduce drastically as solar becomes more economical. These results suggest that research and development in renewable energy may play only a limited role in the short run, while creating the basis for a transition to a sustainable energy economy over the longer time horizon.

JEL Classification: Q30, Q42, O30

Suggested Citation

Chakravorty, Ujjayant and Tse, Kinping, Transition from Fossil Fuels to Renewable Energy: Evidence from a Dynamic Simulation Model with Endogenous Resource Substitution. FEEM Working Paper No. 89.99. Available at SSRN: https://ssrn.com/abstract=200149 or http://dx.doi.org/10.2139/ssrn.200149

Ujjayant Chakravorty (Contact Author)

Tufts University ( email )

Medford, MA 02155
United States

Kinping Tse

University of Hawaii

Honolulu, HI 96822
United States

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