Working Paper Revision

Technology and Energy Substitution: A Path toward Climate Change Mitigation*

Abstract: Mitigating climate change is critically linked to reducing an economy’s reliance on fossil energy. This paper examines U.S. energy dependence, measured by its factor share, using a neoclassical framework systematically. We present the degree of substitution between different factors of production as a simple, explicit mechanism for climate change mitigation and for interpreting energy-saving technical change. With time varying capital equipment-energy substitutability, changes in observed factor quantities alone can account for most of the variations in the income share of energy over 1963-2019. Advancing capital equipment access and quality and integrating the dynamic substitutability between energy and equipment into the design of climate policies can help economies achieve environmental goals.

JEL Classification: E13; E23; E25; J24; Q41; Q42; Q54; Q55;

https://doi.org/10.18651/RWP2023-15

Bibliographic Information

Provider: Federal Reserve Bank of Kansas City

Part of Series: Research Working Paper

Publication Date: 2024-08-02

Number: RWP 23-15

Related Works

• Working Paper Revision (2024-08-02) : You are here.
• Working Paper Original (2023-12-01) : The Role of Technology and Energy Substitution in Climate Change Mitigation