On the causality between energy efficiency and technological innovations: limitations and implications

Although evidence of technological efficiency effect on decreasing energy intensity is documented in a number of studies, there has been a very few detailed investigations of the causality between the variables. Thus, this paper examines the causal relationship between energy efficiency and technological innovations in nine EU countries during 1980-2013. Using the bootstrap panel Granger causality approach, the study finds evidence of a bidirectional causality in Germany, unidirectional causality running from technological innovations to energy efficiency in Denmark, Sweden, France and Austria, and from energy efficiency to technological innovation in Belgium. No causality at any direction is found in the Netherlands, the UK, and Italy. The lack of causality maybe due to a rebound effect, reducing the energy savings from the efficiency improvement. To achieve the global goal of energy intensity, the policy implication of our results suggests that enhancing technological innovations and energy efficiency must be accompanied by taxation and regulations or followed by alternative energy sources such as solar or wind energy generated power in achieving optimal climate benefits.