Micro Engineering Foundations of Energy-Capital Complementarity: Solar Domestic Water Heaters

This paper presents microeconomic estimates of substitution possibilities between capital-intensive, solar-produced energy and conventional, nonrenewable energy sources, while examining the conditions under which recently enacted tax incentives designed to accelerate solar's market penetration could result in an increase, rather than a reduction, in the consumption of nonrenewable energy sources. The empirical results imply that such counter-productive outcomes are possible, given long-run elasticities of demand for energy services around - 1.5.