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“Minus 1” and energy costs constants: Empirical evidence, theory and policy implications

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  • Bashmakov, Igor
  • Grubb, Michael
  • Drummond, Paul
  • Lowe, Robert
  • Myshak, Anna
  • Hinder, Ben

Abstract

This paper demonstrates an apparent long-term constancy of economy-wide energy expenditures relative to income – an inter-decadally-constrained sustainable (“Bashmakov-Newbery”) range of 4.2 ± 0.8 % relative to Gross Output, and 7.2 ± 1.5 % relative to GDP, based on data from industrialised countries. Initial evidence suggests the range to be narrower when external trade effects are accounted for. Statistically equivalent to a very-long-term price-to-energy-intensity elasticity of -1 (“Minus 1”), this indicates long-period economic dynamics including induced innovation and structural change, and we probe theories and policy implications. Either higher energy prices are fully offset by reduced energy intensity, or they later decline to match energy intensity improvements. Complementary theoretical approaches help to explain the observations but challenge the conventional economic logic that high environmental pricing should be the principal instrument to drive transformation. Rather, energy efficiency, innovation, deployment, structural change and pricing co-evolve, suggesting need for a diversity of complementary policy strategies implemented over extended periods of time.

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  • Bashmakov, Igor & Grubb, Michael & Drummond, Paul & Lowe, Robert & Myshak, Anna & Hinder, Ben, 2024. "“Minus 1” and energy costs constants: Empirical evidence, theory and policy implications," Structural Change and Economic Dynamics, Elsevier, vol. 71(C), pages 95-115.
  • Handle: RePEc:eee:streco:v:71:y:2024:i:c:p:95-115
    DOI: 10.1016/j.strueco.2024.06.010
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    More about this item

    Keywords

    Economic cycles; Energy prices; Energy cost share; Energy intensity; Price elasticity; Affordability thresholds; Carbon pricing; Energy transitions;
    All these keywords.

    JEL classification:

    • E25 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Aggregate Factor Income Distribution
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • N7 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies
    • Q3 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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