Substitutability between clean and dirty electricity generation under a clean transition
The elasticity of substitution between wind and solar inputs and dirty inputs in electricity is estimated to be around 3 or 4 by fitting an aggregate production function to panel data. A high elasticity is consistent with detailed electricity models which also predict that the substitutability decreases as the share of clean inputs rises, as integrating intermittent energy supply becomes increasingly difficult. A simple dispatch model of electricity generation demonstrates this characteristic. Decreasing substitutability implies higher costs of a clean transition, greater costs from regions transitioning sequentially rather than together, and a greater role for carbon taxes over research subsidies.
Updated: 29 March 2024/Responsible Officer: Crawford Engagement/Page Contact: CAP Web Team