chapter  2
19 Pages

Energy and economic growth

WithDavid I. Stern

Energy use and economic output are positively correlated, though energy intensity has declined over time and is usually lower in richer countries than in poorer countries. Numerous factors affect the energy intensity of economies, and energy efficiency is obviously one of the most important. However, the rebound effect might limit the possibilities for energy efficiency improvements to reduce energy intensity. Natural science suggests that energy is crucial to economic production, and ecological economists and some economic historians argue that increasing energy supply has been a principal driver of growth. On the other hand, most mainstream economic growth theories ignore the role of energy. These views may diverge because energy scarcity historically imposed constraints on growth, but the increased availability of modern energy sources has reduced energy’s importance as a driver of growth. Empirical research on whether energy causes growth or vice versa is inconclusive, but a meta-analysis finds that the role of energy prices is central to understanding the relationship.