Energy Intensity: Prices, Policy, or Composition in US States

Abstract

This paper uses the historical experience of US states to consider why energy intensity has declined in some places more than in others, and whether that difference can help guide other states and countries in pursuing less energy-intensive (and therefore less pollution-intensive) economic growth. The variation in energy intensity across US states has been similar to the changes across countries, and some states Ð notably California Ð have been held up as models for the rest of the world by international organizations, such as the World Bank. I show that aggregate US energy intensity fell by 40 percent between 1982 and 2007, and that the decline is not explained by the decreasing industrial share of the US economy or the changing composition of the industrial sector. Across US states, prices and policies are correlated with the decreasing share and composition of manufacturing but not with the technology, or Otechnique,O of production, which appears to be the most important source of US energy intensity gains. Importantly, energy intensity has been declining the most in states where economic growth has been the strongest.