Working Paper: NBER ID: w22536
Authors: Kyle C. Meng
Abstract: What induces energy transitions away from dirty fuels? When transitional dynamics exhibit strong path dependence, a temporary shock to fuel composition can trigger a permanent transition from dirty to clean fuels. I empirically examine whether such dynamics characterize the U.S. electricity sector's use of coal - the most climate-damaging fuel - across the 20th century. Exploiting local coal supply shocks driven by changing regional accessibility of subsurface coal, I find that a negative shock triggers a declining trajectory in the relative use of coal for electricity lasting for up to ten decades. Interpreted through a structural change model, reduced-form estimates imply a long-run elasticity of substitution between coal and other fuels of 3.5, a pivotal but largely unknown parameter found across recent models of optimal climate policy. Calibrated model simulations further characterize how climate policies of varying magnitudes and durations could trigger a permanent future energy transition away from coal.
Keywords: energy transitions; path dependence; coal; climate policy
JEL Codes: N51; N52; O41; Q35; Q43; Q54; Q58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Negative coal supply shock (Q31) | Declining trajectory in the relative use of coal for electricity (L94) |
| Negative coal supply shock (Q31) | Permanent transition away from coal (L94) |
| Negative coal supply shock (Q31) | Significant and sustained decline in coal usage for electricity (L94) |
| Negative coal supply shock (Q31) | Relative use of coal decreases (Q35) |
| Relative use of coal decreases (Q35) | Notable jumps in effects observed at two and seven decades post-shock (C41) |
| Negative coal supply shock (Q31) | Strong path dependence in energy transitions (L94) |
| Temporary intervention (Y20) | Permanent switch away from coal (L94) |