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Energy Prices and the Adoption of Energy-Saving Technology

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Joshua Linn

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Abstract

This paper investigates the link between factor prices, technology and factor demands. I estimate the effect of price-induced technology adoption on energy demand in the U.S. manufacturing sector, using plant data from the Census of Manufactures, 1963-1997. I compare the energy efficiency of entrants and incumbents to measure the effect of technology adoption on the demand for energy. A 10 percent increase in the price of energy causes technology adoption that reduces the energy demand of entrants by 1 percent. This elasticity has two implications: first, technology adoption explains a statistically significant but relatively small fraction of changes in energy demand in the 1970s and 1980s; and second, technology adoption can reduce the long run effect of energy prices on growth, but by less than previous research has found.

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Paper provided by Massachusetts Institute of Technology, Center for Energy and Environmental Policy Research in its series Working Papers with number 0612.

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Date of creation: Apr 2006
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Handle: RePEc:mee:wpaper:0612

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