The Impact of Energy Efficiency on Economic Growth: Application of the MARCO Model to the Portuguese Economy 1960–2014

João Santos (), Miguel Viana, Jaime Nieto, Paul E. Brockway, Marco Sakai and Tiago Domingos
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João Santos: MARETEC—Marine, Environment and Technology Center, LARSyS—Laboratory of Robotics and Engineering Systems, Instituto Superior Técnico, Universidade de Lisboa, Av. Rovisco Pais 1, 1049-001 Lisbon, Portugal
Miguel Viana: MARETEC—Marine, Environment and Technology Center, LARSyS—Laboratory of Robotics and Engineering Systems, Instituto Superior Técnico, Universidade de Lisboa, Av. Rovisco Pais 1, 1049-001 Lisbon, Portugal
Jaime Nieto: Sustainability Research Institute, School of Earth and Environment, University of Leeds, Leeds LS2 9JT, UK
Paul E. Brockway: Sustainability Research Institute, School of Earth and Environment, University of Leeds, Leeds LS2 9JT, UK
Marco Sakai: Department of Environment and Geography, University of York, York YO10 5DD, UK
Tiago Domingos: MARETEC—Marine, Environment and Technology Center, LARSyS—Laboratory of Robotics and Engineering Systems, Instituto Superior Técnico, Universidade de Lisboa, Av. Rovisco Pais 1, 1049-001 Lisbon, Portugal

Energies, 2024, vol. 17, issue 11, 1-22

Abstract: The benefits of energy efficiency are recognized in multiple socio-economic spheres. Still, the quantitative impact on macroeconomic performance is not fully understood, as modeling tools are not thermodynamically consistent—failing to explicitly include the useful stage of energy flows and/or thermodynamic efficiencies in primary–final–useful energy transformations. Misspecification in the link between energy use and the economy underplays the role of energy use and efficiency in economic growth. In this work, we develop and implement the Macroeconometric Resource Consumption model for Portugal (MARCO-PT), 1960–2014. Based on the post-Keynesian framework developed for the United Kingdom (MARCO-UK), our model explicitly includes thermodynamic energy efficiency, extending the analysis to the useful stage of energy flows. The model’s stochastic equations are econometrically estimated. The historical influence of key variables—namely thermodynamic energy efficiency—on economic output is assessed through counterfactual simulations and computation of year-by-year output elasticities. The MARCO-PT model adequately describes the historical behavior of endogenous variables. Although its influence has decreased over time, thermodynamic efficiency has consistently been the major contributor to economic growth between 1960–2014, with an average output elasticity of 0.46. Total useful exergy is also a major contributing factor, with an average output elasticity of 0.29. Both have a higher influence than capital, labor, or other energy variables (final energy, prices). An adequate integration of thermodynamic efficiency is thus crucial for macroeconomic models.

Keywords: energy efficiency; economic growth; energy economy modeling; thermodynamics; output elasticity (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2024
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