Energy efficiency and economic growth: A retrospective CGE analysis for Canada from 2002 to 2012

Abstract

The efficiency with which energy is used by firms and households has widespread impacts on economic activity, which in turn has implications for environmental quality and energy security. Using a novel method that could be used for other jurisdictions, we estimate the impact of energy efficiency improvements on Canadian GDP, employment, economic structure, and welfare from 2002 to 2012. We use a counterfactual back-casting method with a sectorally and regionally disaggregated dynamic recursive computable general equilibrium model, in effect “reverse calibrating” the model from observed data to isolate the effects of energy efficiency. We estimate that total energy efficiency improvements in Canada during this period increased GDP by 2.0% (0.19%/yr), employment by 2.5% (0.24%/yr) and household welfare by about 1.5% (0.15%/yr). Additionally, energy efficiency improvements reoriented economic structure from capital intense energy supply sectors to relatively labour intense manufacturing and services. We find evidence of widespread “rebound” on an energy expenditure basis across most sectors, and “backfire” (where energy efficiency leads to absolute energy use increases) in oil sands in situ extraction, bitumen upgrading, shale gas extraction, lime production, pulp & paper, and metal smelting, but overall energy use is reduced by energy efficiency improvements over this period.