UiS Business School Seminars: Climate change, directed innovation, and energy transition – The long-run consequences of the shale gas revolution

The shale gas revolution can potentially reduce CO2 emissions in the short-run in countries which depend heavily on coal. Yet, it may also discourage innovation in green technologies, leading to lower emissions in the long-run. We document that the shale gas revolution was accompanied by a collapse in innovation in green electricity. We build a model of directed technical change where energy is produced using coal, and/or natural gas, and/or a green source of energy. We derive conditions under which, as a result of the above trade-off, the shale gas revolution reduces emissions in the short-run but increases emissions in the long-run. We then use data on electricity production to calibrate the model.