Energy efficiency in general equilibrium with input–output linkages

Abstract

Industrial activity periodically experiences breakthrough innovations in energy efficiency, but the estimated impacts of these innovations on aggregate energy use are highly varied. We develop a general equilibrium model to show this variation is in part determined by the structure of the economy’s input–output network. Our results show industrial energy efficiency improvements affect aggregate energy use through adjustments in factor and commodity markets, and a process of structural transformation that alters the way energy is used and produced in the economy. We describe the aggregate impact of these processes using new energy centrality concepts that measure the extent to which an industry implicitly produces or consumes energy resources. In a calibrated simulation, we find variation in these energy centrality concepts explains between 38 and 92% of variation in the rebound effect, which suggests input–output structure is a critical determinant of the aggregate effects of energy efficiency.