December 2023, RWP 23-15; updated August 2024
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 timevarying 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 classifications: E13, E23, E25, J24, Q41, Q42, Q54, Q55
Article Citation
Çakır Melek, Nida, and Musa Orak. 2023. “The Role of Technology and Energy Substitution in Climate Change Mitigation.” Federal Reserve Bank of Kansas City, Research Working Paper no. 23-15, December. Available at External Linkhttps://doi.org/10.18651/RWP2023-15