Three laws of energy transitions and economic growth

Abstract

This paper explores the interaction between the energy costs/GDP ratio, energy prices, energy efficiency, “quality of energy’’, and economic growth. The relationships between the first three were formulated by the author back in 2007 in the form of three laws of energy transitions. The paper provides additional empirical evidence and theoretical support to these laws and looks into their implications for economic growth and climate mitigation policies. It argues for launching effective energy costs accounting at the national level to support such policies. It also argues that escalation of energy prices driven only by the growing share of higher quality energy resources does not impede, but stimulates economic growth. The paper shows, that improving energy efficiency results in the removal of the ‘limits of growth’ – affordability, resource and environmental limitations; but as it faces the ‘limits of change’, the trade-off between maximizing economic growth and minimizing GHG emissions is inevitable.