Decreasing Substitutability Between Clean and Dirty Energy

37 Pages Posted: 25 Sep 2019 Last revised: 7 Dec 2019

See all articles by Anthony Wiskich

Anthony Wiskich

Centre for Applied Macroeconomic Analysis, ANU

Date Written: September 24, 2019

Abstract

A review of the literature indicates a decreasing long-run elasticity of substitution between clean and dirty inputs as the share of clean inputs rises. In the power sector, which is the largest contributor to greenhouse gas emissions, integrating intermittent clean energy supply becomes increasingly difficult as the clean share rises. This paper describes a simple structural model of electricity generation which: demonstrates how the elasticity falls as the clean share rises; can replicate the range of results from the electricity literature; considers the effects of storage, and; facilitates estimation of a suitable production function. A bimodal production function with two elasticity regimes – an elasticity above 8 up to a 50 to 70 per cent clean share and an elasticity below 3 beyond this share – can replicate results well from the structural model.

Keywords: elasticity of substitution, climate change, energy, electricity, production function

JEL Classification: O33, Q40, Q41, Q42

Suggested Citation

Wiskich, Anthony, Decreasing Substitutability Between Clean and Dirty Energy (September 24, 2019). CAMA Working Paper No. 72/2019, Available at SSRN: https://ssrn.com/abstract=3458743 or http://dx.doi.org/10.2139/ssrn.3458743

Anthony Wiskich (Contact Author)

Centre for Applied Macroeconomic Analysis, ANU ( email )

Australia

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
77
Abstract Views
510
Rank
563,377
PlumX Metrics