Conference Agenda

We model energy transitions (from petroleum to shale oil, and from shale oil to renewables) as a sequence of regime-switching problems in general equilibrium using a three-sector model of macroeconomic growth. We fully characterize both transitions analytically and express the optimal switching times in terms of observable statistics such as known reserves, in-situ and ex-situ energy requirements, and indices of net energy production. While the decision to exploit shale oil delays per se the adoption of renewables, the energy requirements of the primary sector in the first two regimes affect substantially macroeconomic performance, the timing of the switch to renewables, and the welfare outcomes of the overall energy transition. Holding total extraction costs fixed, moderate increases (reductions) in the share of ex-situ (in-situ) costs delay the transition to renewables as much as large increases in fossil-fuel reserves -- e.g., massive discoveries of new oil fields -- because reduced energy availability for final producers harms both consumption and investment possibilities before the adoption of renewables. This result appears particularly relevant for the immediate future since the existing technologies for shale-oil extraction typically exhibit higher (overall as well as ex-situ) energy requirements than conventional oil extraction.