Impact of energy efficiency gains on output and energy use with Cobb–Douglas production function

A special issue of Energy Policy—28 (2000)—was devoted to a collection of papers, edited by Dr. Lee Schipper. The collection included a paper entitled “A view from the macro side: rebound, backfire, and Khazzoom–Brookes” in which it was argued that the impact of fuel efficiency gains on output (roughly, GDP) is likely to be relatively small by Cobb–Douglas production function. However, an error in the analysis leads to under-estimation of the long-term impact. This paper first provides a partial equilibrium analysis by an alternative method for the same case and then proceeds to an analysis on the issue in a two-sector general equilibrium system. In the latter analysis, energy price is internalized. Both energy use efficiency and energy production efficiency are involved.