# 14-108/VIII (2014-08-18)

Author(s)
Gerard van der Meijden, VU University Amsterdam; Sjak Smulders, Tilburg University, the Netherlands
Keywords:
Alternative energy sources, endogenous growth, energy transition, non-renewable resources, technological change
JEL codes:
O30, Q32, Q42, Q56

The energy transition from fossil fuels to alternative energy sources has important consequences for technological change and resource extraction. We examine these consequences by incorporating a non-renewable resource and an alternative energy source in a market economy model of endogenous growth through expanding varieties. During the energy transition, technological progress is non-monotonic over time: it declines initially, starts increasing when the economy approaches the regime shift, and jumps down once the resource stock is exhausted. A moment of peak-oil does no longer necessarily occur, and simultaneous use of the resource and the alternative energy source will take place if the return to innovation becomes too low.