Wiskich, Anthony2026-11-022026-11-022206-0332https://hdl.handle.net/1885/733816710The elasticity of substitution between wind and solar (W&S) and fossil-fuel electricity generation is pivotal for the cost of decarbonisation, yet unsettled. It is not a constant: as intermittent W&S penetration deepens, integration costs rise and substitutability falls. We estimate this profile from the capacity margin—a reduced-form, supply-side measure of how fast utilisation of the retained fossil fleet falls as the W&S share rises. In a country panel through 2025 the elasticity is high—about nine at today’s 15% share of generation—and falls to about four as W&S penetration deepens; an independent, price-based integration-cost literature finds a similar decline. Because substitutability falls as abatement deepens, non-uniform carbon prices across regions grow more inefficient the deeper the abatement, strengthening the case for harmonising carbon prices internationally as the transition advances.elasticity of substitution, clean transition, electricity, variable renewable energy, production function, carbon pricing2026-10-28