Energy mix, technological change, and the environment

Abstract This paper studies the relationship between energy mix and environment using a theoretical framework in which two alternative sources are considered: fossil fuels (dirty energy) renewable (clean energy). We find that positive aggregate productivity shock increases consumption emissions but reduces intensity per unit of output as increases, is, carbon procyclical countercyclical. Second, an efficiency improvement provokes “rebound effect” above 100% (the backfire effect), resulting rise pollutant by increasing use. Third, technological leads to reduction fuel, also implies slow-down adoption sources. Finally, we consider case decentralized economy government chooses optimal specific tax on fuel maximize social welfare. show “second-best” policy is highly effective correcting negative effects environmental externality able almost achive centralized outcome.