Long-Run Energy Use and the Efficiency Paradox

46 Pages Posted: 5 Jan 2016 Last revised: 1 May 2016

See all articles by Sebastian Rausch

Sebastian Rausch

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich; Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change

Hagen Schwerin

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich

Date Written: May 1, 2016

Abstract

We develop a general equilibrium growth theory of vintage capital and energy use in businesses and households to measure the response of energy use to energy-saving technological change. Both investment-specific technological progress and a higher energy price save energy by increasing energy efficiency, yet investment-specific technological progress spurs while a higher energy price depresses energy use. Calibration of the model's balanced growth path to U.S. post-WWII data shows that higher energy efficiency increased rather than reduced energy use. Investment-specific technological progress enhanced energy use by more than the increase in the energy price reduced it. Both neutral and investment-specific technological changes were major determinants of observed growth in energy use.

Keywords: Energy efficiency, energy rebound, energy-saving technological change, investment-specific technological change, household production, putty-clay

JEL Classification: D13, E23, O30, O41, Q43

Suggested Citation

Rausch, Sebastian and Schwerin, Hagen, Long-Run Energy Use and the Efficiency Paradox (May 1, 2016). Available at SSRN: https://ssrn.com/abstract=2710745 or http://dx.doi.org/10.2139/ssrn.2710745

Sebastian Rausch (Contact Author)

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

Massachusetts Institute of Technology (MIT) - Joint Program on the Science and Policy of Global Change ( email )

77 Massachusetts Ave, Bldg E40-474
Cambridge, MA 02139
United States

Hagen Schwerin

ETH Zürich - CER-ETH - Center of Economic Research at ETH Zurich ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland

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