Changes of energy consumption with economic development when an economy becomes more productive

Abstract

Abstract People often observe that energy consumption increases with economic growth such as in China. We developed a model based on heterogeneous productivity to analyze the macro-economic problem of the change of energy consumption with economic development when an economy becomes more productive. When an economy becomes more productive, it has greater output and inputs more resources, and the important factor energy also increases. This increase is the first means by which energy consumption increases with the growth of productivity. The second mechanism is that energy is also an end product; therefore, its consumption largely depends on income (output). Hence, growth in productivity also directly increases energy consumption in people’s lives because they have more income. From the perspective of economic development, the change of energy consumption with economic development has an exceptional case. Energy consumption will be reduced when an economy does not pay attention to the pursuit of increased output purely with larger productivity if adequate necessities of life have already been attained. We also provided several policy recommendations to reduce energy consumption when an economy has experienced a growth of productivity based on our theoretical analysis with China as evidence.