Energy intensity, growth and technical change

World and U.S. energy intensities have declined over the past century, falling at an
average rate of approximately 1.2–1.5 percent a year. The decline has persisted through
periods of stagnating or even falling energy prices, suggesting the decline is driven in
large part by autonomous factors, independent of price changes. In this paper, we use
directed technical change theory to understand the autonomous decline in energy
intensity and investigate whether the decline will continue. We show in an economy with
no state-dependence, where existing knowledge does not make R&D more profitable,
energy intensity continues to decline, albeit at a slower rate than output growth, due to
energy-augmenting innovation. However, in an economy with extreme statedependence,
energy intensity eventually stops declining because labor-augmenting
innovation crowds out energy-augmenting innovation. Our empirical analysis of energy
intensity in 100 countries between 1970 and 2010 suggests a scenario without extreme
state dependence where energy intensity continues to decline; in either case, energy
intensity never declines faster than output grows, and so energy use always increases,
as long as the extraction cost of energy stays constant.