Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/251743 
Year of Publication: 
2022
Series/Report no.: 
Economics Working Paper Series No. 22/369
Publisher: 
ETH Zurich, CER-ETH - Center of Economic Research, Zurich
Abstract: 
The degree of substitutability between clean and dirty energy plays a central role in leading economic analyses of optimal environmental policy. Despite the importance, a constant and exogenous elasticity of substitution has been a dominant theoretical approach. We challenge this assumption by developing a dynamic general equilibrium model with an endogenous elasticity of substitution that interacts with the relative share of clean inputs in the economy. We find strong dynamic feedback effects arising from endogenous substitution capacity that amplifies the impact of directed technical change and accelerates the transition to a green economy.
Subjects: 
elasticity of substitution
directed technical change
climate change
JEL: 
Q40
Q55
Q54
O33
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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