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The Elasticity of Substitution between Clean and Dirty Energy with Technological Bias

Author

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  • Ara Jo

    (Center of Economic Research, ETH Zürich, Zürichbergstrasse 18, 8089 Zürich, Switzerland.)

Abstract
The elasticity of substitution between clean and dirty energy and the direction of technological change are central parameters in discussing one of the most challenging questions today, climate change. Despite their importance, there are few studies that empirically estimate these key parameters. In this paper, I estimate the elasticity of substitution between clean and dirty energy from micro data, jointly with technological parameters that reflect the direction of technological change within the energy aggregate. I find estimates of the elasticity of substitution ranging between 2 and 3. The largely dirty-energy-biased technological change observed in the data validates the framework of directed technological change, given the historical movement of relative energy prices and the estimated elasticity of substitution above unity. However, I also find suggestive evidence that clean-energy-augmenting technology is growing faster than dirty-energy-augmenting technology in recent years with changes in relative energy prices and higher subsidies for clean energy.

Suggested Citation

  • Ara Jo, 2020. "The Elasticity of Substitution between Clean and Dirty Energy with Technological Bias," CER-ETH Economics working paper series 20/344, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    • Handle: RePEc:eth:wpswif:20-344
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    File URL: https://www.ethz.ch/content/dam/ethz/special-interest/mtec/cer-eth/cer-eth-dam/documents/working-papers/WP-20-344.pdf
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    References listed on IDEAS

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    Cited by:

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    3. Ara Jo & Christos Karydas, 2023. "Firm Heterogeneity, Industry Dynamics and Climate Policy," CER-ETH Economics working paper series 23/378, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    4. Alena Miftakhova & Clément Renoir, 2021. "Economic Growth and Equity in Anticipation of Climate Policy," CER-ETH Economics working paper series 21/355, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.

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    More about this item

    Keywords

    Elasticity of substitution; directed technical change; climate change;
    All these keywords.

    JEL classification:

    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation
    • Q54 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Climate; Natural Disasters and their Management; Global Warming
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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