Thesis Defense - Stefan Hinkelmann

Thesis defence

Date: Wednesday 12 June 2024

Time: 10.00 – 12.00

Location: Hörsal 9, Hus D, Södra Husen Frescati

On the Macroeconomics of the Energy Transition

Link to thesis here

Opponent: Robert Hart, SLU

Supervisor: Per Krusell, John Hassler

Climate Policies and Input Substitution over Time

This paper investigates quantitatively how the impact of climate policies such as a carbon tax differs over the short and long run in the macroeconomy. We document limited possibilities to switch from fossil fuels to green alternatives over short time horizons. Over more extended periods, however, this substitutability increases significantly. The same pattern holds for aggregate energy in production. We then build a quantitative growth model that accounts for these patterns through a technology-choice channel. We find that, in order to achieve similar long-run emission targets, carbon taxes should be increased by about 10% permanently compared to models that focus on the long run only.

Electrification of U.S. Aggregate Production: Theory and Evidence

In this paper, I scrutinize the process of electrification, defined as an increase in the share of electricity in the energy bundle. I first document trends and facts regarding the use of fossil fuels and electricity as end-use energy types in production in the U.S. I provide evidence that these two energy types are strong complements in the short- but more substitutable in the long run. In particular, I estimate the short-run elasticity of substitution between these two energy inputs to be 0.06 and argue for a Cobb-Douglas relationship and, thus, a unitary elasticity of substitution in the long run. I then build a model that can quantitatively reproduce these facts through a directed technological change mechanism. Crucially, the main driver of electrification is the relative improvement of fossil fuel use efficiency vis-à-vis electricity's.

(Be-)Coming Clean: A Model of the U.S. Energy Transition

This paper develops a quantitative framework of the energy transition and shows how the decarbonization of the economy hinges on three main mechanisms endogenous to the model: (i) developments in energy efficiency determining energy use in a growing economy; (ii) electrification of the production process driven by directed technical change; and (iii) capacity building for green electricity production. I then use the model to evaluate a net zero by 2050-policy vis-à-vis business as usual. I find that the energy transition happens in a laissez-faire scenario but has to be sped up if the policy target is to be fulfilled. In particular, I find that the required carbon tax is initially around $250 per ton CO2, and output and consumption growth are transitionally 0.2-0.3 percentage points lower under environmental policy.

Green Subsidies, the Energy Transition, and Implications of the Inflation Reduction Act

This paper studies the implications of green subsidies on the economy and the energy transition. I include a technology and a learning-by-doing (LBD) externality in Chapter 3’s framework. The internalization of these inefficiencies requires green subsidies, which have important implications for the energy transition. In particular, fossil fuel use in the economy will reduce by 38% by the end of the 2060s compared to laissez-faire. Additionally, the two externalities interact. Internalizing the LBD mechanism reduces the technology externality, while internalizing the technology shift exacerbates the implications of unaccounted-for LBD. Investigating the IRA shows that it is leveraging the right externality with an imperfect instrument: ITCs do not perfectly internalize the LBD externality and lead to fossil fuel use rebounding after their expiration.