Macroeconomic impacts of energy productivity: a general equilibrium perspective

Abstract

This study aims to enhance our understanding on the macroeconomic effects of autonomous energy efficiency improvement. We adopt a global computable general equilibrium model assuming future energy efficiency improvement until 2040 follows historical trends at a regional level including the USA, European Union, Japan, Russia, China, India, and Brazil over the period of 1995–2009. Results show that the global GDP would increase by 1.3% from 2015 to 2040, without making any regions worse off, if energy efficiency in all economic activities other than energy production gradually reaches 10% higher in 2040 than a baseline scenario. However, economy-wide rebound effects on energy use accumulate over time and vary from 55 to 78% across regions in 2040. The additional energy efficiency improvement by the same percentage for fossil and non-fossil energy pushes a stronger downward pressure on fossil fuel prices than on renewable prices, thus discouraging the share of renewables in the energy mix. We conclude that energy efficiency policy needs to be aligned with renewable and climate targets to control its rebound effect on energy use and related emissions.