The macroeconomics of energy-transition metal bottlenecks

This paper develops a dynamic general equilibrium model in which energy-transition metals are essential inputs into both production and capital accumulation, while their supply capacity adjusts endogenously and gradually. The green transition shifts investment toward metal-intensive green technologies, generating bottlenecks that depress investment and potential output. Nominal rigidities amplify short-run losses while monetary-policy stabilization faces a trade-off: supporting economic activity raises demand for scarce transition inputs, increasing their relative prices and the cost of investment. Climate-policy continuation risk further increases transition costs by weakening investment in green capital and ETM production capacity, making bottlenecks more persistent and raising long-run output losses. We compare taxes and subsidies targeting sectoral output with those targeting metal use. Targeting metal use can reduce transition costs relative to output-based policies when metals enter production and demand is sufficiently elastic. When metals enter capital accumulation and demand is inelastic, however, taxing brown-sector metal use slows the transition and increases its macroeconomic costs because the policy raises investment costs while releasing few metals for green investment. Our findings show how endogenous metal-supply adjustment, policy credibility, and the choice of tax and subsidy bases jointly shape the macroeconomic consequences of the green transition.