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Energy Transition, Technological Spillovers and Elasticity of Substitution

Author

Listed:
  • Chiara Colesanti Senni

    (ETH Zurich, Switzerland)

Abstract

Countries such as Germany and Switzerland have included the energy transition in their policy programs, setting specific targets in terms of energy production from renewables. However, the energy transition has a cost, which so far has been partly covered by subsidizing the clean production. This has produced an adverse effect, leading to overproduction in the clean sector and negative prices in the electricity spot market. An excessive subsidy, which does not takes into account technological spillovers and the elasticity of substitution, might be the cause. We use endogenous growth theory to study how the cost of the energy transition - proxied by a subsidy - is affected by these two channels. We provide a numerical solution to the model to give an insight into the magnitude of the effect considered. The main findings are: (1) technological spillovers reduce the cost of the energy transition and the subsidy becomes negative after a threshold value of relative spillover intensities; (2) a higher elasticity of substitution between the two sectors increases the cost of the energy transition.

Suggested Citation

  • Chiara Colesanti Senni, 2017. "Energy Transition, Technological Spillovers and Elasticity of Substitution," CER-ETH Economics working paper series 17/281, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  • Handle: RePEc:eth:wpswif:17-281
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    File URL: https://www.ethz.ch/content/dam/ethz/special-interest/mtec/cer-eth/cer-eth-dam/documents/working-papers/WP-17-281.pdf
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    More about this item

    Keywords

    Energy transition; Negative electricity prices; Technological spillovers; Elasticity of substitution; Market size effect;
    All these keywords.

    JEL classification:

    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
    • 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
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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