Innovation-Led Transitions in Energy Supply

University of Arizona Working Paper 17-10

80 Pages Posted: 25 Nov 2015 Last revised: 11 Sep 2020

See all articles by Derek Lemoine

Derek Lemoine

University of Arizona - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 10, 2020


I generalize a benchmark model of directed technical change to allow innovations and factors of production (here energy resources) to be substitutes or complements. I show that a dominant sector is forever locked-in under substitutability but researchers' market incentives can drive a transition away from a dominant sector under complementarity. In a calibrated numerical implementation to climate change policy, transitions from coal to gas and then to renewable energy occur in laissez-faire. Optimal policy uses a subsidy for clean R&D to hasten the transition to renewable energy and an increasing emission tax to control residual fossil fuel use. A standalone clean research subsidy is more valuable than a standalone emission tax unless climate change is especially costly or policy cannot be enacted soon. A standalone mandate to use renewable energy can also increase welfare by igniting an energy transition, but only if it is sufficiently large.

Keywords: innovation, complementarities, lock-in, path dependence, energy, climate, greenhouse gas, carbon

JEL Classification: O33, O38, Q41, Q54

Suggested Citation

Lemoine, Derek, Innovation-Led Transitions in Energy Supply (September 10, 2020). University of Arizona Working Paper 17-10, Available at SSRN: or

Derek Lemoine (Contact Author)

University of Arizona - Department of Economics ( email )

McClelland Hall
Tucson, AZ 85721-0108
United States


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