Compute Capsule for: Innovation-Led Transitions in Energy Supply

Generalizing models of directed technical change, I show that complementarities between innovations and factors of production (here energy resources) can drive transitions away from a dominant sector. In a calibrated numerical implementation, the economy gradually transitions energy supply from coal to gas and then to renewable energy even in the absence of policy. The welfare-maximizing tax on carbon emissions is J-shaped, immediately redirects most research to renewables, and rapidly transitions energy supply directly to renewables. The emission tax is twice as valuable as either the welfare-maximizing research subsidy or the welfare-maximizing mandate to use renewable resources. This compute capsule computes the fmincon solution without using Knitro optimizers. See the paper for the solution using Knitro, and http://doi.org/10.3886/E165841V1 for the complete replication package.