More on the Output Elasticity of Energy Consumption

IN work published in I968, Adams and Miovic' noted that the output elasticity of energy consumption (commonly called the energy coefficient) was a somewhat amorphous parameter, differing substantially between countries and changing over time. They demonstrated that if energy statistics were adjusted to take account of the different efficiencies of the different main fuels the resulting adjusted energy elasticity was much more stable. Because of substitution of more efficient for less efficient fuels the unadjusted elasticity was often less than one in developed countries. The adjusted elasticities on the other hand lay between I.25 and I.4 when related to GDP and between I.04 and I.I5 when related to industrial production, the ranges in each case covering the different types of regression exercise by which the efficiency-in-use coefficients were computed. This paper develops a simple theory governing the relationship between useful energy consumption and national output that explains why the adjusted elasticities found by Adams and Miovic turned out to be greater than one. The theory is quantified by reference to a wide range of countries covering the whole spectrum of economic development and is tested against the actual experience over 20 to 25 years of individual countries. Conformity to the theory was very close and the efficiency-in-use coefficients computed by Adams and Miovic were found to hold good for periods of 20 to 25 years. Briefly, the hypothesis states that as a country moves through the various stages of its economic development from primitive subsistence agriculture to the ultimate state of fully energy-dependent2 production, its useful energy elasticity steadily falls froma high value (in principle, from infinity) tending asymptotically to one. This hypothesis follows directly from the fact that if a country is moving steadily towards a higher degree of energy-intensiveness in production then the specific energy content of incremental output will be higher than the average for all output, i.e.