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A Note on the Role of Energy in Production


  • Keen, Steve
  • Ayres, Robert U.
  • Standish, Russell


Energy plays no role in the standard Cobb-Douglas Production Function (CDPF), and a trivial role in a three-factor CDPF where it is treated as a third input, independent of labour and capital. Starting from an epistemological perspective, we treat energy as an input to both labour and capital, without which production is impossible. We then derive an energy-based CPDF (EBCDPF) in which energy plays a critical role. We argue for the redefinition and measurement of real GDP in terms of exergy. We conclude that the “Solow Residual” measures the contribution of exergy to growth, and that the exponents in the EBCDPF should be based on cross-country comparative data as suggested by Mankiw (1995) rather than the “cost-share theorem”.

Suggested Citation

  • Keen, Steve & Ayres, Robert U. & Standish, Russell, 2019. "A Note on the Role of Energy in Production," Ecological Economics, Elsevier, vol. 157(C), pages 40-46.
  • Handle: RePEc:eee:ecolec:v:157:y:2019:i:c:p:40-46
    DOI: 10.1016/j.ecolecon.2018.11.002

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    References listed on IDEAS

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    2. Leiva, Benjamin & Ramirez, Octavio A. & Schramski, John R., 2019. "A framework to consider energy transfers within growth theory," Energy, Elsevier, vol. 178(C), pages 624-630.
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    4. Timothy J Garrett & Matheus Grasselli & Stephen Keen, 2020. "Past world economic production constrains current energy demands: Persistent scaling with implications for economic growth and climate change mitigation," PLOS ONE, Public Library of Science, vol. 15(8), pages 1-19, August.
    5. R W. Bentley & M. Mushalik & J. Wang, 2020. "The Resource-Limited Plateau in Global Conventional Oil Production: Analysis and Consequences," Biophysical Economics and Resource Quality, Springer, vol. 5(2), pages 1-22, June.
    6. Oustry Antoine & Erkan Bunyamin & Svartzman Romain & Weber Pierre-François, 2020. "Climate-related Risks and Central Banks’ Collateral Policy: a Methodological Experiment," Working papers 790, Banque de France.
    7. Hagens, N.J., 2020. "Economics for the future – Beyond the superorganism," Ecological Economics, Elsevier, vol. 169(C).
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