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The Economics of Technology Diffusion and Energy Efficiency

Peter Mulder, Assistant Professor, VU University Amsterdam and Tinbergen Institute, The Netherlands
Technological change plays a crucial role in realizing energy efficiency improvements and, therefore, in ameliorating the conflict between economic growth and environmental quality. However, the diffusion of new technologies can prove a costly and lengthy process, meaning that many firms do not invest in best-practice technologies. The author offers important new explanations for this energy-efficiency paradox.
Extent: 272 pp
Hardback Price: £91.00 Web: £81.90
Publication Date: 2005
ISBN: 978 1 84376 823 4
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  • Economics and Finance
  • Energy Economics
  • Environment
  • Ecological Economics
  • Innovation and Technology
  • Technology and ICT
Technological change plays a crucial role in realizing energy efficiency improvements and, therefore, in ameliorating the conflict between economic growth and environmental quality. However, the diffusion of new technologies can prove a costly and lengthy process, meaning that many firms do not invest in best-practice technologies. The author offers important new explanations for this energy-efficiency paradox.

This volume contributes to a better understanding of the interplay between economic growth, energy use and technological change, with particular emphasis on the adoption and diffusion of energy-saving technologies. In the theoretical section, the author examines how several characteristics of technological change and environmental policy affect the dynamics of technology choice. He demonstrates how technological complementarity, learning processes and uncertainty can help explain why the innovation and diffusion of new technologies is such a protracted and complex procedure. The empirical section explores long-run trends in energy and labour productivity performance, as well as patterns of substitutability and technological change across a range of OECD countries. The book concludes by integrating the results in an applied policy model of economy-energy interaction.

This book is unique in applying insights from different perspectives to the field of energy economics, and by focusing on the diffusion of energy-saving technologies rather than their innovation. It will be of immense value to academics and policymakers with an interest in energy economics, environmental economics and the interaction between economic growth and natural resources.
‘This book is a path-breaking work. It is unique in the economic growth literature for its incorporation of diffusion theory into an economic growth model. In constructing the model, the author has drawn on both neo-classical and evolutionary growth theory. He uses the model to address the energy-efficiency paradox – why are efficient energy technologies often adopted so slowly? A significant, and counterintuitive, finding is that subsidies designed to speed-up the adoption of energy saving technologies in the short run may have an adverse effect in the longer run, due to the premature adoption of inferior technologies. Therefore, an important policy implication is that increased subsidies for energy saving technologies can be counterproductive.’
– Vernon W. Ruttan, University of Minnesota, Twin Cities, US

‘Energy and environmental policy discussions increasingly focus on issues related to technological change. In this new book, Peter Mulder recognizes that technological change will play an absolutely central role in achieving increases in energy efficiency, thereby mitigating what might otherwise be unacceptable trade-offs between economic growth and environmental quality. He focuses on the role of uncertainty, which is central to investment, in order to investigate how microeconomic decisions give rise to macroeconomic patterns. In a broad-ranging study, he builds upon key developments in the economic theory of technological change to develop his theoretical model and empirical analysis.’
– Robert N. Stavins, Harvard University, US
Contents: Part I: Introduction 1. Technological Change, Economic Growth and Energy Use 2. Economic Theory of Growth and Technological Change: A Neoclassical Versus an Evolutionary Perspective Part II: Theoretical Models 3. Explaining Slow Diffusion of Energy-Saving Technologies: Returns-to-Diversity and Learning-by-Using in a Vintage Model 4. Subsidizing the Adoption of Energy-Saving Technologies Part III: Empirical Analyses 5. International Comparisons of Sectoral Energy and Labour Productivity: Stylized Facts and Decomposition of Trends 6. Sectoral Energy and Labour Productivity Convergence Part IV: Policy Analyses and Conclusions 7. Dynamics of Technology Diffusion in an Applied Energy–Economic Model for the Netherlands 8. Conclusions References Index