Reconciling Economic and Environmental Goals: Impact of Information Technology on Energy Productivity

Abstract

Increasing energy productivity has been emphasized as an important means to reconcile the dual objectives of maintaining economic growth and reducing energy consumption. Employing a production function framework, we examine the impact of information technology (IT) on energy productivity. Using data from 60 industries in the United States over the period 1998-2014, we find that IT significantly contributes to increasing energy productivity in the U.S. economy, and is mainly driven by software rather than hardware. Separate analyses of economic and environmental performances reveal that IT’s positive contribution to energy productivity results from both increased output and reduced energy consumption. Further, we find strong complementarities between the two types of IT capital in not only increasing productivity but also reducing energy consumption. In particular, the intensive utilization of software appears to mitigate the negative environmental impact of hardware. Taken together, this study highlights the critical role of IT—software, in particular—as a catalyst for enhancing energy productivity, a necessary condition for sustainable economic growth, beyond its role as a driver of productivity growth, which has been the focus of prior literature. This research has important implications for research and practice.