Long-Run Energy Use and the Efficiency Paradox
46 Pages Posted: 5 Jan 2016 Last revised: 1 May 2016
Date Written: May 1, 2016
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
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