Energy storage and the direction of technical change

Published on 24 March 2023

By Mohamed Bahlali

We study how storage technologies drive the direction of technical change in the energy sector. To that end, we extend the model of endogenous innovation from Acemoglu et al. (2012) by adding a storage factor in the production function. Clean and dirty inputs are assumed to be perfect substitutes, but clean energy is intermittent and needs to be backed up by dirty energy or storage. We show that (i) without intervention, as long as energy storage is expensive, innovation is pushed to the dirty sector — and all the more when renewable energy is cheap (ii) a policy aiming at phasing out dirty energy as quickly as possible should allocate, at each time, the research to the less advanced sector between clean energy and storage. These results suggest that governments should now prioritize funding research in storage technologies, in order to accelerate the energy transition and shift innovation away from fossil fuels.

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