The role of investment for energy conservation

Abstract

This article describes a variant of the Cobb-Douglas production function (the Rasche-Tatom model) which explicitly includes an energy factor. The model is applied to the Japanese economy to investigate the role of investment for energy conservation. First, the impact of rising energy prices on potential GNP and productivity is shown. Second, it is suggested that the Japanese economy will achieve a high growth rate (5.0–5.5%) in the coming five years through substitution of capital for energy, ie investment for energy conservation. An international comparison of the models is also discussed.