Fossil Energy in Economic Growth: A Study of the Energy Direction of Technical Change, 1950-2012
40 Pages Posted: 15 Jun 2016
Date Written: June 13, 2016
Climate change mitigation challenges national economies to increase productivity while reducing fossil energy consumption. Fossil energy-saving technical change has been assumed to accomplish this, yet empirical evidence is scarce. This paper investigates the long-run relationship between the rate and direction of technical change with respect to fossil energy and labor in the world economy. Growth rates of labor productivity and the fossil energy-labor ratio are examined for more than 95% of world output be- tween 1950 and 2012. The average elasticity of the energy-labor ratio with respect to labor productivity is close to one, implying highly energy-using technical change, but no trade-off between factor productivity growth rates. This stylized fact suggests the importance of a cheap, abundant energy supply for robust global growth, and a more important role for renewable energy. Integrated assessment models do not incorporate this restriction which may result in poorly specified baseline scenarios.
Keywords: labor productivity, fossil energy productivity, energy-using technical change, decoupling, long-run trends, stylized fact
JEL Classification: N10, O44, O47, Q43
Suggested Citation: Suggested Citation