Explaining Long-Run Changes in the Energy Intensity of the U.S. Economy

Abstract

Recent events have revived interest in explaining the long-run changes in the energy intensity of the U.S. economy. We use a KLEM dataset for 35 industries over 39 years to decompose changes in the aggregate energy-GDP ratio into shifts in sectoral composition (structural change) and adjustments in the energy demand of individual industries (intensity change). We find that although structural change offsets a rise in sectoral energy intensities from 1960 until the mid-1970s, after 1980 the change in the industrial mix has little impact and the average sectoral energy intensity experiences decline. Then, we use these data to econometrically estimate the influence on within-industry changes in energy intensity of price-induced substitution of variable inputs, shifts in the composition of capital and embodied and disembodied technical progress. Our results suggest that innovations embodied in information technology and electrical equipment capital stocks played a key role in energy intensity’s long-run decline.