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Fossil Fuels, Alternative Energy and Economic Growth

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  • Raul Barreto

    () (School of Economics, University of Adelaide)

Abstract

We present a theoretical framework that incorporates energy within an endogenous growth model. The model explicitly allows for the interaction and substitution between fossil fuels, defined as a non-renewable resource derived from some fixed initial stock, and alternative energy, defined as renewable resource whose production requires capital input. The dynamics of the model depict a unique balance growth to a saddle point. The consumption path temporarily peaks, when fossil fuels are plentiful and cheap, followed by a fall, as fossil fuel become more scarce and alternative energy production has yet to take over, until finally the steady state is reached where alternative energy production fuels the entire economy. The model depicts a sort of energy heyday when fossil fuels are still plentiful and cheap. As oil stocks fall, alternative energy sources become ever more viable until the day in the future when alternative energy has almost completed replaced oil. Whether or not the peak oil type picture of consumption the model depicts actually represents a sort of energy rich heyday depends analytically on the productivity differential between alternative energy and fossil fuels now and in the future.

Suggested Citation

  • Raul Barreto, 2013. "Fossil Fuels, Alternative Energy and Economic Growth," School of Economics Working Papers 2014-03, University of Adelaide, School of Economics.
  • Handle: RePEc:adl:wpaper:2014-03
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    File URL: https://media.adelaide.edu.au/economics/papers/doc/wp2014-03.pdf
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    Cited by:

    1. repec:gam:jsusta:v:11:y:2019:i:19:p:5472-:d:273054 is not listed on IDEAS
    2. repec:eco:journ2:2018-06-45 is not listed on IDEAS
    3. repec:eee:rensus:v:103:y:2019:i:c:p:361-369 is not listed on IDEAS

    More about this item

    Keywords

    Endogenous growth; non-renewable resources; renewable resources; energy; oil; fossil fuels; alternative energy; peak oil;

    JEL classification:

    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q21 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Demand and Supply; Prices
    • Q31 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Demand and Supply; Prices

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