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The B.E. Journal of Macroeconomics

Editor-in-Chief: Cavalcanti, Tiago / Kambourov, Gueorgui

Ed. by Abraham, Arpad / Carceles-Poveda , Eva / Debortoli, Davide / Schwartzman, Felipe / Wang, Pengfei


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1935-1690
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Investment, technological progress and energy efficiency

Antonia Díaz / Luis A. Puch
  • Universidad Complutense de Madrid, Department of Economic Analysis and ICAE, Madrid, Comunidad de Madrid, Spain
  • Other articles by this author:
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Published Online: 2019-01-12 | DOI: https://doi.org/10.1515/bejm-2018-0063

Abstract

In this paper we propose a theory to study how the aggregate demand of energy responds to energy prices and technical innovations that affect the price of energy services. In our theory, energy use is determined by the interaction of the choice of Energy Saving Technical Change with energy prices and Investment Specific Technical Change (ISTC). The key mechanism is that the energy saving technology is embodied in capital vintages as a requirement that determines their energy intensity. We show that higher ISTC that increases the quality of capital goods is an energy saving device and, therefore, a substitute for Energy Saving Technical Change (ESTC). However, higher ISTC that rises the efficiency in producing capital goods is energy consuming and fosters ESTC to compensate for the amount of energy required by the new investment. A higher price of energy also induces a higher level of ESTC, but the aggregate amount of energy used may not be affected as investment does not change. These effects are amplified with rising prices of energy. Thus, our theory can be used to test when and how we should see a rebound effect in energy use at the aggregate level and to evaluate the aggregate effect of any policy aiming to reduce energy use.

Keywords: energy saving technical change; energy use; investment specific technical change; rebound effect; vintage capital

JEL Classification: E22; E23; Q43

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About the article

Published Online: 2019-01-12


Funding Source: Spanish Ministerio de Economía, Industria y Competitividad

Award identifier / Grant number: ECO2016-76818, MDM 2014-0431

Funding Source: Consejería de Educación, Juventud y Deportes de la Comunidad de Madrid

Award identifier / Grant number: S2015/HUM-3444

Financial support from the Spanish Ministerio de Economía, Industria y Competitividad (grant ECO2016-76818) is gratefully acknowledged. Antonia Díaz thanks the Ministerio de Economía, Industria y Competitividad, María de Maeztu grant (MDM 2014-0431), and the Consejería de Educación, Juventud y Deportes de la Comunidad de Madrid for MadEco-CM grant (S2015/HUM-3444).


Citation Information: The B.E. Journal of Macroeconomics, 20180063, ISSN (Online) 1935-1690, DOI: https://doi.org/10.1515/bejm-2018-0063.

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