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Endogenous directed technical change for energy transition

Author

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  • Zaied, Younes Ben
  • Mattoussi, Wided
  • Marra, Alessandro

Abstract

The finite nature of certain fossil fuels, which are essential inputs in production, imposes a substantial constraint on the economy's long-term growth potential. This paper develops an endogenous directed technical change model under uncertainty regarding the timing of a potential backstop technology discovery. The model directs R&D towards increasing the probability of a technological breakthrough, triggering thereby a transition from a fossil fuel-dependent economy to one powered by cleaner, renewable energy sources. We derive analytical solutions using a general optimal control framework allowing to establish the Pontryagin (maximum principle) first-order optimality conditions, complemented with an adequate numerical assessment to a model of the optimal allocation of national economic resources between consumption, investment, and R&D. We identify the optimal time paths for consumption in both the pre- and post-backstop adoption economies, the depletion rate of fossil fuels, investment in R&D, and the utilization rate of the substitute, under two scenarios: when energy input and physical capital are substitutes in production, and when they are complements.

Suggested Citation

  • Zaied, Younes Ben & Mattoussi, Wided & Marra, Alessandro, 2027. "Endogenous directed technical change for energy transition," European Journal of Operational Research, Elsevier, vol. 336(2), pages 683-704.
    • Handle: RePEc:eee:ejores:v:336:y:2027:i:2:p:683-704
    DOI: 10.1016/j.ejor.2025.02.020
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    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • Q32 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Exhaustible Resources and Economic Development
    • Q38 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Government Policy (includes OPEC Policy)
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources

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