Abstract
The degree of substitutability between clean and dirty energy plays a central role in leading economic analyses of optimal environmental policy. Despite the importance, assuming a constant and exogenous elasticity of substitution has been a dominant theoretical approach. We challenge this assumption by developing a dynamic general equilibrium model with an endogenous elasticity of substitution that interacts with the relative share of clean inputs in the economy. We find strong dynamic feedback effects arising from endogenous substitution capacity that amplifies the impact of directed technical change and accelerates the transition to a green economy.
| Original language | English |
|---|---|
| Article number | 102982 |
| Number of pages | 21 |
| Journal | Journal of Environmental Economics and Management |
| Volume | 125 |
| Early online date | 16 Apr 2024 |
| DOIs | |
| Publication status | Published - 31 May 2024 |
Acknowledgements
We thank Maria Alsina-Pujols, Lucas Bretschger, Daniel Haerle, Christos Karydas, Alexei Minabutdinov, Armon Rezai and participants at the RESEC seminar2022, EAERE 2022, SURED 2022, and AERE 2022 conferences for their helpful comments. We thank the Secure Data Access Center (CASD) for providing confidential micro data.
Funding
Alena Miftakhova gratefully acknowledges financial support from the Swiss Federal Office of Energy, Switzerland.
UN SDGs
This output contributes to the following UN Sustainable Development Goals (SDGs)
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SDG 13 Climate Action
Keywords
- Climate change
- Directed technical change
- Elasticity of substitution
ASJC Scopus subject areas
- Economics and Econometrics
- Management, Monitoring, Policy and Law
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