Does Higher Energy Efficiency Lower Economy-Wide Energy Use?

We develop a general equilibrium growth model with capital and energy use to examine the hypothesis that economy-wide energy use increases with energy efficiency. To obtain energy use that would have occurred in the absence of energy efficiency changes, chosen energy efficiency is induced by technological change. Viewing technological change in form of changes in the cost of capital and energy producing energy services enables us to control for the sources of energy efficiency improvements in a counterfactual setting. Calibrating the model to the post-WWII U.S. economy, we find that higher energy efficiency increased rather than reduced energy use, because lower capital cost enhanced energy use by more than the increase in energy cost reduced it. This casts strong doubts on the view that energy-saving technological change has lowered fossil energy use.