Non-renewable and renewable resources are imperfect substitutes due to technical and geographical constraints. What is the role of imperfect substitution on the optimal transition path to clean technologies? We address this question by characterizing the optimal growth path and resource use of an economy. We show the initial simultaneous use of resources and find cases where (i) the economy switches to the backstop at a certain date or (ii) the initial regime lasts forever. The economy converges to a steady state even if the backstop is too costly and a green, zero-carbon economy is the optimal final state in any case.
Group for Research in Decision Analysis