A Child's Guide to Energy Intensity and Energy Efficiency

This paper focusses on ambiguities in the discussion of energy efficiency linked to the fact that energy is typically combined with other non-energy inputs to generate energy-using services. An important potential source of misunderstanding concerns the different measures of energy efficiency. We draw here a clear distinction between energy effectiveness (also known as energy augmenting technical change) and energy intensity. In this discussion we stress the importance of various forms of endogenous substitution in determining changes in energy intensity following improvements in energy effectiveness. We also analyse the potential impact on energy intensity of improvements in the effectiveness of non-energy inputs. Finally, we explore the treatment of the costs of activating energy saving technology embodied in capital equipment.