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Does Higher Energy Efficiency Lower Economy-Wide Energy Use?

Author

Listed:
  • Sebastian Rausch

    () (ETH Zurich, Switzerland)

  • Hagen Schwerin

    () (ETH Zurich, Switzerland)

Abstract

We develop a general equilibrium growth model with capital and energy use to examine the hypothesis that economy-wide energy use increases with energy efficiency. To obtain energy use that would have occurred in the absence of energy efficiency changes, chosen energy efficiency is induced by technological change. Viewing technological change in form of changes in the cost of capital and energy producing energy services enables us to control for the sources of energy efficiency improvements in a counterfactual setting. Calibrating the model to the post-WWII U.S. economy, we find that higher energy efficiency increased rather than reduced energy use, because lower capital cost enhanced energy use by more than the increase in energy cost reduced it. This casts strong doubts on the view that energy-saving technological change has lowered fossil energy use.

Suggested Citation

  • Sebastian Rausch & Hagen Schwerin, 2018. "Does Higher Energy Efficiency Lower Economy-Wide Energy Use?," CER-ETH Economics working paper series 18/299, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  • Handle: RePEc:eth:wpswif:18-299
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    File URL: https://www.ethz.ch/content/dam/ethz/special-interest/mtec/cer-eth/cer-eth-dam/documents/working-papers/WP-18-299.pdf
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    More about this item

    Keywords

    energy use; energy efficiency; energy rebound; efficiency paradox; Jevons paradox; energy-saving technological change; investment-specific technological change; general equilibrium; putty clay;

    JEL classification:

    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • Q43 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Energy and the Macroeconomy

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