NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Estimating Path Dependence in Energy Transitions

Kyle C. Meng

NBER Working Paper No. 22536
Issued in August 2016, Revised in February 2019
NBER Program(s):Development of the American Economy, Environment and Energy Economics, Economic Fluctuations and Growth, Public Economics

How can an economy transition from dirty to clean inputs? When transitional dynamics exhibit strong path dependence, a temporary shock to input composition can trigger permanent structural change. This paper examines whether such dynamics characterize the U.S. energy sector's use of coal - the most climate-damaging energy input - over the 20th century. Exploiting local coal transport distance shocks driven by the changing regional accessibility of subsurface coal resources, I find increasing imbalance in the coal composition of electricity capital lasting ten decades following a shock. Additional tests detect increasing returns to scale as the underlying mechanism. To inform energy transitions more broadly, I develop a model of scale-driven structural change to map reduced-form estimates onto a key parameter found across a class of structural change models. Calibrated model simulations further characterize conditions under which a temporary climate policy can trigger a permanent future transition towards clean energy.

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Document Object Identifier (DOI): 10.3386/w22536

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