July 2022

Renewable Technology Adoption Costs and Economic Growth

Bernardino Adao, Borghan Narajabad, and Ted Temzelides

Abstract:

We develop a dynamic general equilibrium integrated assessment model that incorporates costs due to new technology adoption in renewable energy as well as externalities associated with carbon emissions and renewable technology spillovers. We use world economy data to calibrate our model and investigate the effects of the technology adoption channel on renewable energy adoption and on the optimal energy transition. Our calibrated model implies several interesting connections between technology adoption costs, the two externalities, policy, and welfare. We investigate the relative effectiveness of two policy instruments- Pigouvian carbon taxes and policies that internalize spillover effects-in isolation as well as in tandem. Our findings suggest that renewable technology adoption costs are of quantitative importance for the energy transition. We find that the two policy instruments are better thought of as complements rather than substitutes.
Accessible materials (.zip)

Keywords: Technology adoption, scrapping, energy transition, climate, dynamic taxation

DOI: https://doi.org/10.17016/FEDS.2022.045

PDF: Full Paper

Disclaimer: The economic research that is linked from this page represents the views of the authors and does not indicate concurrence either by other members of the Board's staff or by the Board of Governors. The economic research and their conclusions are often preliminary and are circulated to stimulate discussion and critical comment. The Board values having a staff that conducts research on a wide range of economic topics and that explores a diverse array of perspectives on those topics. The resulting conversations in academia, the economic policy community, and the broader public are important to sharpening our collective thinking.

Back to Top
Last Update: August 08, 2022