Energy efficiency and economic growth

Vivid Economics was commissioned by The Climate Institute in Australia to examine the causal relationship between energy efficiency and economic growth. Advanced statitiscal methods are applied and it is found that an improvement in energy efficiency can contribute to higher economic output. Energy efficiency improvements are found to contribute positively to economic growth for the group of 28 OECD countries over the last three decades. This does not imply that the same relationship will contunue or be present for individual countries. Over the last three decades, economic growth partly decoupled from energy consumption and energy productivity increased. The statistical analysis is based on these past results.

There are two effects which can influence the results as well as its applicability in the future:

  • as countries became more energy efficient over time, they moved closer to their maximum possible level of energy efficiency; and
  • the diverse dataset for this study spans countries at different stages of development. Low income countries usually have more potential for energy efficiency improvement as well as a naturally higher economic growth rate.

Both effects suggest that the found positive effect might not be applicable to each country individually and that the relationship might change in the future.

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