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Substituting Clean for Dirty Energy: A Bottom-Up Analysis

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  • Fabian Stöckl
  • Alexander Zerrahn

Abstract

We fit CES and VES production functions to data from a numerical bottom-up optimization model of electricity supply with clean and dirty inputs. This approach allows for studying high shares of clean energy not observable today and for isolating mechanisms that impact the elasticity of substitution between clean and dirty energy. Central results show that (i) dirty inputs are not essential for production. As long as some energy storage is available, the elasticity of substitution between clean and dirty inputs is above unity; (ii) no single clean technology is indispensable, but a balanced mix facilitates substitution; (iii) substitution is harder for higher shares of clean energy. Finally, we demonstrate how changing availability of generation and storage technologies can be implemented in macroeconomic models.

Suggested Citation

  • Fabian Stöckl & Alexander Zerrahn, 2020. "Substituting Clean for Dirty Energy: A Bottom-Up Analysis," Discussion Papers of DIW Berlin 1885, DIW Berlin, German Institute for Economic Research.
    • Handle: RePEc:diw:diwwpp:dp1885
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    Cited by:

    1. Fabian Stöckl, 2020. "Is Substitutability the New Efficiency? Endogenous Investment in the Elasticity of Substitution between Clean and Dirty Energy," Discussion Papers of DIW Berlin 1886, DIW Berlin, German Institute for Economic Research.
    2. Jo, Ara & Miftakhova, Alena, 2024. "How constant is constant elasticity of substitution? Endogenous substitution between clean and dirty energy," Journal of Environmental Economics and Management, Elsevier, vol. 125(C).
    3. Bakhtavoryan, Rafael & Hovhannisyan, Vardges, 2024. "Residential demand for energy in light of changing solar prices," 2024 Annual Meeting, July 28-30, New Orleans, LA 343883, Agricultural and Applied Economics Association.
    4. Alkis Blanz & Beatriz Gaitan, 2023. "Reducing residential emissions: carbon pricing vs. subsidizing retrofits," Papers 2310.15687, arXiv.org.
    5. Ferguson, Shon & Heijmans, Roweno J.R.K., 2023. "Climate Policy and Trade in Polluting Technologies," Working Paper Series 1470, Research Institute of Industrial Economics.
    6. Emanuele Campiglio & Alessandro Spiganti & Anthony Wiskich, 2023. "Clean Innovation, Heterogeneous Financing Costs, and the Optimal Climate Policy Mix," CAMA Working Papers 2023-25, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University, revised May 2024.
    7. Emanuele Campiglio & Alessandro Spiganti & Anthony Wiskich, 2023. "Clean innovation and heterogeneous financing costs," Working Papers 2023: 07, Department of Economics, University of Venice "Ca' Foscari".

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    More about this item

    Keywords

    Elasticity of substitution; clean and dirty energy; electricity production; decarbonization; green growth;
    All these keywords.

    JEL classification:

    • O44 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Environment and Growth
    • Q42 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Alternative Energy Sources
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy
    • Q55 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Technological Innovation

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