Energy mix, technological change, and the environment

This paper studies the relationship between the energy mix and the environment using a theoretical framework in which two alternative energy sources are considered: fossil fuels (dirty energy) and renewable energy (clean energy). We find that a positive aggregate productivity shock increases energy consumption and emissions but reduces energy intensity and emissions per unit of output as renewable energy consumption increases, that is, carbon emissions are procyclical but emissions per unit of output are countercyclical. Second, an energy efficiency improvement provokes a ``rebound effect'' above $100\%$ (the backfire effect), resulting in a rise of pollutant emissions by increasing energy use. Third, a technological improvement in emissions leads to a reduction in emissions per unit of fossil fuel but also implies a slow-down in the adoption of renewable energy sources. Finally, we also study the effects of a price shock to the pollutant energy, resulting in a substitution of the ``dirty'' by the ``clean'' energy, leading to a decline in energy consumption and emissions but at the cost of decreasing output.