How does international trade in fossil fuels affect countries’ choices of electricity generation sources? I leverage granular energy infrastructure data to build and estimate a dynamic model of global investment in electricity generation and trade. The model incorporates a number of key margins that affect electricity mix choices across the world. First, coal, natural gas and renewables, the three main electricity sources, differ in the GHG emissions they generate when transformed into power. Second, natural constraints generate differential availability of local fossil fuel inputs across the world, and also introduce differences in country-specific potential for electricity generation through renewables. Third, electricity generation requires large source-specific sunk investments. Fourth, while renewables are largely non-tradable, fossil fuels are internationally tradable but export and import capacity also requires large source-specific infrastructure, such as gas pipelines, LNG export and import terminals, and coal terminals. Lastly, the capital cost of renewables evolves endogenously over time due to learning-by-doing in input production and capacity installation.
