Julien Dubois

This paper develops a unified theory to disentangle the distinct forces driving the energy transition: capital replacement, directed technical change, and vintage-specific technical progress. The model introduces a continuum of capital vintages with heterogeneous embodied efficiencies and allows for both disembodied and vintage-specific improvements. A key innovation is a parameter that interpolates between putty-putty and putty-clay capital, capturing the degree of rigidity in installed capital efficiency. This rigidity generates path dependence and alters the speed and cost of the transition. Quantitatively, ignoring vintage frictions leads to significant biases: energy use and welfare costs during the transition can be underestimated by up to 10%. These results highlight the importance of accounting for capital heterogeneity and flexibility when designing climate policy and forecasting sustainable growth paths.