Energy Efficiency and Economic Growth: the ‘Rebound Effect’ as a Driver

Abstract

In this chapter we argue for two linked theses. The first thesis is that increasing energy efficiency has been a major — perhaps the major — driver of economic growth since the industrial revolution. In fact, ‘technological progress’ as normally construed by economists appears to be primarily due to increasing energy-conversion efficiency, notwithstanding contributions from information technology in recent decades. The second, related thesis is that, while reduced carbon dioxide emissions are essential for long-term global sustainability, the usual policy recommendation of most economists and many ‘greens’, namely to increase the cost of energy by introducing a carbon tax, would be ill-advised. Such a policy might have the beneficial effect of reducing government budgetary deficits. But it would have an adverse impact on economic growth, at least in the industrial world.