Claudia Gentile (University of Zurich)

Relying on Intermittency: Clean Energy, Storage, and Innovation in a Macro Climate Model

Abstract. The transition to clean energy technologies is essential to reduce CO2 emissions. One significant challenge associated with renewable energy sources, such as solar and wind, is their intermittency. I study the intermittency problem by introducing a novel micro-founded energy sector with directed technical change in a macro climate model. I show that the aggregate elasticity of substitution between clean and dirty energy crucially depends on the development of storage technologies. If the storage technology is not developed, the economy is trapped in a scenario in which the elasticity of substitution eventually becomes zero. Without policies, the provision of storage technologies is inefficiently low, impeding the transition towards clean, intermittent technologies. In the optimal allocation, the clean energy transition is accelerated with an initial clean energy share increasing from 25% to 70% and a reallocation of all R&D resources away from dirty energy towards clean energy and, in particular, energy storage technologies. The introduction of clean energy subsidies under the US Inflation Reduction Act is successful in increasing the short-run clean energy share but is insufficient to solve the intermittency problem.