Innovation-Led Transitions in Energy Supply
89 Pages Posted: 24 May 2017 Last revised: 30 Dec 2021
Date Written: May 2017
Generalizing models of directed technical change, I show that complementarities between innovations and factors of production (here energy resources) can drive transitions away from a dominant sector. In a calibrated numerical implementation, the economy gradually transitions energy supply from coal to gas and then to renewable energy even in the absence of policy. The welfare-maximizing tax on carbon emissions is J-shaped, immediately redirects most research to renewables, and rapidly transitions energy supply directly to renewables. The emission tax is twice as valuable as either the welfare-maximizing research subsidy or the welfare-maximizing mandate to use renewable resources.
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