by John Cochrane on the role of cheap clean energy which by itself will not reduce CO2 in the long run: The standard vision in policy discussions assumes infinite substitutability. As soon as the cost of clean energy is lower than the cost of carbon-emitting energy, everyone substitutes completely to the latter and the oil and coal stay in the ground. … But as long as the elasticity of substitution is finite … then the carbon comes out of the ground. As you use less and less, the remaining uses become more and more valuable, so it’s worth it, privately and to society, to keep using it although at lower scale. So I learn from this that a key focus for R&D is not so much on lowering the cost of alternatives, but increasing their substitutability for fossil fuels. Just because the cost of
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Dirk Niepelt considers the following as important: Clean energy, Climate Change, John Cochrane, Notes, Substitution
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John Cochrane on the role of cheap clean energy which by itself will not reduce CO2 in the long run:
The standard vision in policy discussions assumes infinite substitutability. As soon as the cost of clean energy is lower than the cost of carbon-emitting energy, everyone substitutes completely to the latter and the oil and coal stay in the ground. … But as long as the elasticity of substitution is finite … then the carbon comes out of the ground. As you use less and less, the remaining uses become more and more valuable, so it’s worth it, privately and to society, to keep using it although at lower scale.
So I learn from this that a key focus for R&D is not so much on lowering the cost of alternatives, but increasing their substitutability for fossil fuels. Just because the cost of solar cells is plummeting does us little good. We need to increase their substitutability.