This dissertation shows that energy demand and supply are subject to significant short-run frictions, which are quantitatively important from a welfare perspective for the transmission of climate policies. Energy demand exhibits a low short-run elasticity between green and brown energy, indicating the prevalence of a putty-clay technological specification—where relative energy inputs remain fixed in the short run—as opposed to a more flexible putty-putty specification, where inputs can be varied quickly. Structural vector autoregressions reveal substantial adjustment costs in the energy supply sector, which limits its ability to respond to relative price shocks in the short run. Including these frictions suggests a gradual, but with a terminally high rate, implementation of carbon taxes.