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Directed Technical Change and Energy Intensity Dynamics: Structural Change vs. Energy Efficiency

Abstract:
This paper uses a model with Directed Technical Change to theoretically analyse observable heterogeneous energy intensity developments. Based on the empirical evidence, we decompose changes in aggregate energy intensity into structural changes in the economy (structural effect) and within-sector energy efficiency improvements (efficiency effect). The relative importance of these effects is determined by energy price growth and sectoral productivities that drive the direction of technical change. When research is directed to the labour-intensive sector, the structural effect is the main driver of energy intensity dynamics. In contrast, the efficiency effect dominates energy intensity developments, when research is directed to energy-intensive industries. Increasing energy price generally leads to lower energy intensities and temporal energy price shocks might induce a permanent redirection of innovation activities. We calibrate the model to empirical data and simulate energy intensity developments across countries. The results of our very stylised model are largely consistent with empirical evidence.

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Energy Specializations: Energy Efficiency –  Other; Energy and the Economy – Energy Shocks and Business Cycles; Energy Modeling – Sectoral Energy Demand & Technology

JEL Codes: O33: Technological Change: Choices and Consequences; Diffusion Processes, O41: One, Two, and Multisector Growth Models, Q43: Energy and the Macroeconomy, Q55: Environmental Economics: Technological Innovation, :

Keywords: Directed technical change, Energy efficiency, Energy intensity, Structural change

DOI: 10.5547/01956574.39.4.chaa


Published in Volume 39, Number 4 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.