Exploring the link between GDP and energy

It is easy to understand that our entire economy practically depends on energy consumption. Considering that we turn resources into products and services, and that any transformation requires the use of energy, it seems logical that the output of the economy is intertwined with the amount of energy added to the system.

 

 GDP Energy

 

 

It is also very well known that the largest share of the energy we consume comes from fossil fuels (90% of the primary energy consumption in 2011) which are, without a doubt, finite resources. 

Therefore if the future of the economy relies on the future of energy, which depends on finite resources, building an economy without carbon becomes vital for any political program.

GDP Energy

 

Objective:

 

The objective of the working group launched by The Shift Project is to analyze to which extent energy is the first element that shapes the economy by questioning the link between GDP and energy consumption.

In the first phase we will scrutinize the relationship between GDP and energy consumption in the long run and evaluate the elasticity of consumption growth and energy efficiency with econometric methods. 

In the second phase we will establish a macro economic model that includes the volume of energy consumption as a driver of GDP. This analytical inquiry will be based on a Putty-Clay model of directed technical progress and endogenous growth. The main departure with standard approaches will consist in introducing energy as an input of the world production function, and assuming that energy and labor are gross substitutes - while capital is but the output of accumulated past labor and energy. As a by-product, it will provide a theoretical explanation of various striking stylized facts: the constancy of the energetic intensity of the world GDP as well as the constancy of the wage share in the added value.

Finally in a last phase we will analyze the future of fossil-dependent economies, and determine how much they are subjected to constraints for their supply of fossil fuels.  

 

About the working group

The group gathers experts on energy, economics and econometrics.

Gaël Giraud (CNRS, Centre d'Economie de la Sorbonne, Ecole d'Economie de Paris)

Jean-Marc Jancovici (The Shift Project)

Zeynep Kahraman (The Shift Project)