Energy and Economic Growth

Since the 1950s, at least, it has been clear that factors other than capital and labor must be responsible for most economic growth. Historical and anecdotal evidence suggests that the substitution of machines powered by fossil energy for human and animal labor must have played a significant or even dominant role in driving growth. The situation is complicated by the coming peak in global petroleum output and the technological transition that must follow. Economists have inconsistent views on these relationships. The most dangerous is the assumption that growth is both optimal and exogenous. This implies that growth is automatic and costless. It also implies that any government intervention is likely to impose costs. Another implication of the standard theory is that economic growth is independent of energy use, so energy consumption is a consequence but not a cause of growth. Some argue also that economic growth is actually a prerequisite for environmental protection, both because the latter is a ‘superior’ good – i.e. a luxury – desired mainly by the rich, and because advanced technology and wealth are needed for purposes of both prevention and abatement of environmental damage. On the other hand, there is much evidence that growth along the historical trajectory itself is a primary cause of pollution and environmental degradation. More realistic techno-economic models are badly needed.