Energy transition and climate change abatement: A macroeconomic analysis

Abstract

The paper integrates the characteristics of regenerative energies into a dynamic macroeconomic model with climate change. Learning and economies of scale in new energy moderate the cost of emissions reductions and increase the speed of decarbonization. I provide closed-form analytical solutions for the development of regenerative energies, emissions, consumption, and population. The elasticity of substitution between clean and dirty energy inputs, stringency of climate policy, and potential raw material scarcity constitute critical conditions for reaching carbon neutrality by 2050. I find that a timely carbon phase-out requires sufficient substitution in the energy sector, continued learning and scale effects in regenerative energies, and active climate policy, which is indispensable even with enormous cost degression of regenerative energies. Raw material scarcity induced by regenerative energy use slows down the transition but can be overcompensated by more stringent climate policy at a moderate economic cost.