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

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Abstract This paper uses a theoretical model with Directed Technical Change to analyse the observed heterogeneous energy intensity developments. Based on the empirical evidence on the underlying drivers of energy intensity developments, we decompose changes in aggregate energy intensity into structural changes in the economy (Sector Effect) and within-sector energy efficiency improvements (Efficiency Effect). We analyse how energy price growth and the relative productivity of both sectors affect the direction of research and hence the relative importance of the aforementioned two effects. The relative importance of these effects is determined by energy price growth and relative sector productivity that drive the direction of research. In economies that are relatively more advanced in sectors with low energy intensities, the Sector Effect dominates energy intensity dynamics given no or moderate energy price growth. In contrast, the Efficiency Effect dominates energy intensity developments in economies with a high relative technological level within their energy-intensive industries if moderate energy price growth is above a certain threshold. We further show that temporal energy price shocks might induce a permanent redirection of innovation activities towards sectors with low-energy intensities. Terms of use: Documents inKeywords: directed technical change, energy efficiency, energy intensity, structural change.JEL-Classification: O33, Q43, Q55. * We thank Jürgen Meckl, Ulf Moslener, Jana Brandt, Lothar Grall, Matthias Greiff, and the participants of the 9th MAGKS Colloquium (Marburg) for fruitful comments.

The Dynamics of Structural and Energy Intensity Change

“…To our knowledge, there has been a lack of theoretical approaches to explore the mechanisms of energy intensity change, with the exception of [10] that recently filled the gap. Reference [10] uses a theoretical model with directed technical change (DTC), marginally modified from the model of [11], to analyze the underlying mechanisms of the aggregate energy intensity change. Their model consists of two different intermediate sectors, with and without energy input.…”

Theoretical Explanations for the Inverted-U Change of Historical Energy Intensity

“…On the contrary, if there has generalized energy technological regress (χ > γ i ), the sectoral energy intensity will increase (χ − γ i > 0). The basic mechanism of sectoral energy intensity change, featuring in monotonicity, is analogous to that in Cao [33] and coincides with Haas and Kempa [31]. That is, given technological growth rates and factor income shares, the sectoral energy intensity will be shaped in a monotonic way.…”

“…Moreover, Equation 25, as well as Cao [33] and Haas and Kempa [31], indicates that energy intensity at disaggregated level grows monotonically. In sum, we need to specify the energy intensity changes in agriculture, manufacturing and services respectively, in order to investigate the fact of inverted-U change of economy-wide energy intensity.…”

“…This is a simplified description of the real sectoral energy intensity developments, which may be nonmonotonic or nonlinear even in a short period. However, similar to Haas and Kempa [31] and Cao [33], we do not take nonmonotonic changes into account at the disaggregated level. However, the nonmonotonic changes of energy intensity can be captured at the aggregation level.…”

“…The third relevant strand of literature aims to explore the change of energy intensity using theoretical approaches. For example, Haas and Kempa [31] first utilized a theoretical model with DTC, marginally modified from the model in Acemoglu et al [32], to analyze the observed heterogeneous energy intensity developments across countries. Based on this model, the overall energy intensity changes could be theoretically decomposed into structural changes (Sector Effect) and efficiency improvements (Efficiency Effect).…”